P2P lenders get confidence boost with protection plan

Peer-to-peer (P2P) lending in China was a vibrant business in 2017 and 2018 isn’t expected to be any different. Data from WangSaizhiJia and Kapronasia Analysis estimate that P2P transactions closed at RMB 225 billion in December 2017, with 1,931 platforms operating in China at the close of the year.

China’s marketplace lending is bracing for regulation around “record filing” systems that kicks into effect this month (April 2018). However, said new regulations may not be addressing altogether the problem of runaway credit that is growing on the back of cash loans and microlending market.

Leilei Wang, Fintech consultant for Kapronasia, noted that regulators focus more on how to restrict P2P platforms as opposed to checking borrower’s default rate. “The launch of China’s first individual credit valuation company, Baihangzhengxin, should make it easier for P2P platforms to check applicant’s record and update their credit records accordingly,” she added.

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Figure 1: P2P platform transaction value and growth rate (billion RMB)

Source: WangSaizhiJia and Kapronasia Analysis, 2018

To ease concerns about loan defaults, Dianrong and China United SME Guarantee Corporation (aka Sino Guarantee) have partnered to offer lender protection plan for Dianrong customers. The plan is designed to provide third-party protection in the event of a loan default.

“This collaboration provides lenders and borrowers with an independent protection mechanism and further strengthens Dianrong’s position as a leading online lending marketplace,” said Bryan Pang, Chief Risk Officer at Dianrong.

Dianrong borrowers have the option to purchase the Sino Guarantee lenders protection plan improving the borrower’s risk and credit profile.

Benefits of extra protection plan

The Sino Guarantee lenders protection plan fully complies with China’s new P2P guarantee regulatory requirements. All funds within the plan are monitored by the custodian bank.

Sino Guarantee will use a dedicated fund account to pay lenders the loan principal and any outstanding interest in the event of a loan default covered by the plan.

Once the lenders are paid following a default, Sino Guarantee will then initiate and manage borrower repayments directly. After deducting repayment costs, the remaining funds will be deposited to a dedicated account held by Bank of Shanghai and administered by Sino Guarantee.

Kapronasia’s Wang, said the initiative should help ease lenders’ concerns about risks. She noted that for this to work both [Dianrong and Sino Guarantee] should disclose details on when and how much the lenders will be compensated. “It should be clear that if there is any hidden cost as lenders are most concerned about their investment capital. Disclosing more details of the platform will be of great helps, especially about project status, original data, calculation methods and 3rd party evaluation results,” she elaborated.

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