China: The Newest and Oldest Fan of P2P Lending
Sunday, February 22, 2009 at 12:48AM
Anita in China, CreditEase, Kiva, Peer-to-Peer Lending, p2p lending

,According to an article published earlier this month, p2p lending is gaining traction in China. The inability of individuals and small firms to access credit from state-owned banks has spurred internet p2p lenders, such as leader CreditEase, to fill the unmet demand.

Unlike p2p lending in the West, which is generally viewed as a new and innovative approach to lending, China is more familiar with the concept. Along with various other informal lending schemes, loans between individuals are legal and common in China. According to some estimates, informal lending might account for 10 to 20 percent of the country's total lending. Thus, the emergence of platforms like CreditEase are more indicative of a change in venue—the internet instead of the street—rather than a new access point to credit.  This may help explain the Chinese government's relaxed response to budding internet p2p lenders.

Innovative or not, CreditEase has generated US$29 million in loans since 2006.  Although much smaller than p2p giant Prosper, this amount is close to the US$33 million loaned by Kiva after about 3 years of operations.  The platform operates by selecting borrowers and then diversifying investors' funds among numerous loans. With reported returns of over 12 percent, and defaults under 1 percent, CreditEase seems bound for smooth sailing.

What will be interesting to see is whether the demand for CreditEase’s services will continue to grow. China’s loosening of credit quotas for commercial banks (by 5 percent) and local commercial banks (by 10 percent) may have an impact on the growth of p2p markets in the country. A recent article on credit in China mentions that informal lending flourished when credit quotas were in place and that the recently observed increase in bank loans may partly represent a flow from informal to formal lending.

Flicker credit: upton



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