Peer-to-peer lending platforms require stricter supervision

IN THE FIRST half of this month, 71 peer-to-peer online lending platforms have closed down and some of the business owners have fled. The unprecedented wave of P2P lending collapses is causing panic in the entire industry. Guangming Daily comments:

Peer-to-peer lending, which used to be eulogized as an innovative, flexible and convenient financing tool, witnessed a robust increase in 2015, when its transaction volume exceeded 1 trillion yuan ($147.5 billion), nearly triple the amount of the previous year.

The financial administrative department’s loose supervision, if not noninterference, facilitated the industry’s rapid growth, because the regulators wished to make it into a financing tool to help small and micro enterprises, to which banks are reluctant to lend.

However, the platforms’ funds come mainly from listed enterprises and private investors, to whom the platform operators invariably promise high returns. This of course means the operators must find investment opportunities or channels that yield even higher returns.

In the current economic climate it is almost impossible to secure sufficient investment opportunities that can generate such high returns. So the boom in the new financing tool has become a bubble.

The urgency of making big money as soon as possible has derailed the industry’s growth curve turning it into a bloody struggle for investment based on empty promises of profits.

If the surviving peer-to-peer lenders do not lower their profit promises to investors, their bankruptcy will only be a matter of time. It is no secret that some are already repaying their old investors with money from new ones.

Many investors are stepping up their withdrawal of funds in order to avoid risks, which will lead to further deterioration of the lending platforms. Due to the wide distribution of P2P investors, if the current problems are not properly resolved, it will affect the healthy operation of the social economy.

Therefore, relevant departments should pay attention to this issue and take effective measures to minimize the adverse effects. In particular, it is necessary to establish a risk management system to control and eliminate risks and protect the rights of investors.