Recommendation
P2P lending refers to the growing sectors, if initially they were created only for consumer loans, now this process is used to support small business and mortgage payments. Therefore, companies need to collect and analyze the condition of assets and liabilities. They also need to make an effective control on the part of the supervisory board and the board of the credit union for changes in assets and liabilities and to take urgent measures to respond if necessary. P2P companies need to implement flexible management of the interest margin in order to provide cover fixed operating costs and maintenance of the planned level of profitability, which should provide cover fixed operating expenses. The platform should ensure that the information contained on it is complete and to publish the rest of the important information available in connection with the project or the project owner.
Key Factors
The main factors are the active development of Internet technologies in finance and improving the reliability of electronic transactions. The lack of opportunity for many borrowers get a traditional bank loan, or the proposed conditions are too onerous for them. The emergence of a situation where the profitability of the traditional conservative instruments ceased to satisfy potential investors. The development of other alternative financial technologies in the form of crowdfunding. Accordingly, crowdfunding sites were a response both to the desire of investors to increase their income with minimal risk (which is just the characteristic of the debt), and the desire of many borrowers to access long-term funding at reasonable rates.
Options
Development of the market can go to a decline in the absence of any change in the Chinese market. Loans from banks and even microfinance institutions issued at lower rates than in the systems of P2P lending. The main factor determining the rate of growth of the market implies increasing public awareness and credibility of this kind of services. This is a critical challenge for the players. Crowdfunding is a part of alternative finance systems, enabling individuals to lend using online platforms to other natural or legal persons. In China, the monetization platforms is mainly due to commission income. Chinese sites are considered mature companies that go out of the profit. They have already passed all stages of venture capital and private equity funds are financed.
Potential Obstacles
Chinese P2P lending may have such difficulties:
- the development of an active micro-credit under extremely high interest rates. As a consequence - the growing share of non-performing loans, which currently exceeds 20%, the deterioration of credit history and the need to refinance debt;
- the decrease in activity of banks in the credit market and tightening requirements for borrowers on consumer credit;
- the lack of access to credit for small and medium-sized businesses. In addition to cash, small and medium business in China needs the support and advice of specialized financial and credit institutions;
- the low profitability of traditional conservative instruments in the form of deposits.
Potential Opportunities
Rapidly growing market and the obvious advantages of crowdfunding sites compared to traditional financial institutions will attract the attention of investors in China because it provides “an innovative loaning and investment vehicle without the intermediation of financial institutions” (Chen, Han, 2012, p.2). Representatives of small and medium enterprises in China are still interested in the organization of professional financial institutions, whose activities would be aimed at supporting start-ups and to help those who want to grow their small business, but due to lack of financial and property guarantees can not get funding from banking institutions. P2P lending institutions will be more effective compared to the traditional: the ratio of operating costs to the loan portfolio at crowdfunding sites less (lower operating costs due to the significant savings in office costs, billing costs).
References
Chen, D., & Han, C. (2012). A Comparative Study of online P2P Lending in the USA and China. Journal of Internet Banking and Commerce, Vol. 17(2), 1-15.
