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Growing Opportunities in Asian P2P

Extremely strong growth continues in the Chinese P2P market. We have looked at three very recent examples that illustrate the incredible progress this space is making.

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Legend Holdings, the parent company of Lenovo computer, is expanding into peer-to-peer lending and other types of finance. This expansion is part of Legend’s strategy to acquire and grow core assets, while boosting growth through non-organic expansion. Legend hopes to become a publically traded company within the next two years.  

Peer-to-peer lending in China is a huge market and was estimated to have topped $48 billion in 2014, despite the collapse of several platforms. Legend already has experience in this sector as it has been investing in many online financial services since September. It follows other major internet companies which have started to expand into the peer-to-peer lending business. The most well known example of this is Alibaba.   

In September Legend invested in P2P platform Yindou, the company and its various subsidiaries announced similar deals involving the interest finance platforms P2PEye and ELoancn, as well as Sino-Parsons, which offers solutions related to P2P lending services.

ELoancn was set up in 2007, and is one of the earliest peer-to-peer lenders in China and uses an online-to-offline model to connect farmers in need of funds with lenders in the same region.

Legend told the WantChinaTimes in December that:

"The company (ELoancn) has years of experience in private lending and e-commerce and understands county-level economies well. ELoancn can help with several of Legend Holdings' existing businesses, such as modern agriculture."

ELoancn now has over 1000 operation centres in about 100 domestic cities. Its volumes have topped 200 million Yuan every month after August 2014.

Legend has commented:

"The prosperity of Internet technologies has created a lot of opportunities for China's economic restructuring, the upgrading of China's traditional industries and the development of China's emerging industries, so as to become the immense impetus for business and social innovation. Internet finance has risen to generate a series of new modes such as P2P lending and investment & financing in recent years, which have not only created great convenience for the people's life, but also made inclusive finance possible."

Further to this, Hong Kong based WeLend has announced that it has closed a US$20 million series A funding round from DST Global founder Yuri Milener, ICONIQ Capital, and Ule; who have invested alongside previous investors Sequoia Capital and TOM Group. The platform raised $14 million in June 2014 and has added $6 million from these three new investors.

WeLend marketing manager Rachel Lam say that Hong Kong and mainland China are two distinctly different markets:

"They are indeed very different. Hong Kong has a very comprehensive regulatory landscape, credit bureau database, well-developed fraud detection system, and collection facilities, thus lending is a highly competitive yet profitable business," Lam says. "On the contrary, China has huge potential for business growth because of its population and unfulfilled loan needs, while we can take part in building the infrastructure for risk management and fraud detection."

In addition to WeLend, WeLab also operates Wolaidai, which is a mobile P2P lending platform for top-tier university students in China. These loans range from $50 to $500. WeLab will be using this investment to support its expansion into China and improve its credit risk technology. The platform is planning on launching two or three more products in China and one to two new products in Hong Kong this year.

In addition to this a Chinese startup Aixuedai has completed a $40 million series A round of financing. The company was founded in December 2012 and launched in August 2013. The platform allows university students to purchase items like phones, tablets, laptops and cameras using monthly installment plans. It has a very simple model. Students simply find the item that they want to buy on an ecommerce site such as JD or Tmall, and put the url into the application. They can then choose the number of months over which they want to pay back the money. 

However, there is another competitor in this seemingly niche market. Qufenqi is an almost identical player in this space. But it targets a broader audience than just students and has fixed listings. It raised $100 million series C round in December just eight months after it launched.

The peer-to-peer market in China is a very crowded one. It is attracting a lot of attention but little is really known about many of the platforms. As these reports show, the sites are raising huge amounts of money and investors are desperate to get a share in the action. However, we are cautious when looking at how long this momentum can be maintained for, and it can probably be said that the asset prices is this sector are highly inflated but it is important to question how long this level of institutional enthusiasm will last for without some radical structural changes. 

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