Cleanup of lending platforms to better serve small enterprises

THE STATE COUNCIL, China’s Cabinet, began asking for online lending platforms to rectify their behaviour two years ago, aiming to limit the growing risks. But both the investors and platform owners, blinded by the potentially exorbitant returns from what is a de facto usury business model, have simply ignored the authorities’ warnings and continued to expand their funding and lending scale. People’s Daily comments:

Investors should be realistic and not be tempted by the abnormally high returns promised by the cash-thirsty lending platforms.

The rupture of the online lending platforms’ capital chains is predictable as their debtors are mostly small enterprises that cannot secure financing from banks and face difficulties making ends meet and other high risk money-making activities.

The State Council requires the platforms to act merely as information intermediaries bringing borrowers and lenders together, and it is seeking to regulate how the investors’ funds are used and to restrict large and high-risk debts.

But some platforms are still expanding, and net inflows are still increasing. And why not? The incentives for lenders and borrowers to voluntarily withdraw are not strong. If the lenders are still

receiving high returns, they will be unwilling to cut short the time in which they can earn the high interest. The borrowers have no option but to continue to renew their loans.

In the face of the online loan market with its innate defects, the supervision of all parties is necessary.

Thus the regulatory authorities are actively promoting rectification of the industry and conducting on-site inspections.

The online lending platforms should play their intended role in serving small and micro enterprises and broadening the investment channels of residents by exerting a strong technical advantage and fulfilling their role as information intermediaries.

Investors meanwhile should open their eyes and maintain a rational investment mentality.