Chinese authorities have issued a statement requiring all peer-to-peer lending platforms to shut down within two years, putting an end to a once important credit system that conceived countless cases of misconduct.
Peer-to-peer (P2P) firms that are qualified and wish to remain in the sector must convert into small lenders over the next two years, according to a notice issued by the Internet Financial Risk Special Rectification Work Leadership Team Office. In order to transition, firms must meet a minimum capital requirement of 50 million yuan ($7.1 million) to become a small regional lender and 1 billion yuan ($142 million) to become a small national lender.
All outstanding loans must be cleared within a year with the exception of those managing more than 5 billion yuan ($711 million) in outstanding loans with longer maturities, which will be allowed an extended 2-year period instead.
Poor History
Initially seen as a credit mechanism that could provide liquidity and stability, China’s P2P lending boom led to a series of misconduct ranging from Ponzi schemes to unpaid loans from bosses on the run. In one case, fintech firm Credit Card 51 allegedly hired debt collectors that resorted to intimidation and harassment. Such collectors even allegedly posed as fake government officials to strong-arm delinquent borrowers.
The issue has led to concerns from top authorities not only about the state of financial stability but also its social stability.
«[The transition plan] an active approach to resolve risks contained in the existing business of online lenders,» the notice seen by «Reuters» said. «[It aims to] reduce the loss of creditors, maintain social stability and prompt orderly development of inclusive finance.»
As of the latest data from the China Banking and Insurance Regulatory Commission, the nation is currently home to 427 P2P firms which is a significant drop from 6,000 in 2015.
