It has been reported that Lufax has recently completed a US$485 million round of funding. Investors in the deal are said to include BlackPine Private Equity Partners, CDH Investments and China International Capital Corp.’s private equity division. BlackPine is providing the bulk of the financing.
The deal leaves Ping An, Lufax’s early backer, with a minority stake in the company.
Lufax was launched in 2012 and has arranged more than 200,000 peer-to-peer loans worth a total of $2.5 billion. It is currently one of the largest peer-to-peer lenders in China, focusing on consumer debt of around $10,000.
Lufax collects fees of about 4% from borrowers and the loans typically yield about 6-8%. In contrast to most peer-to-peer lenders Lufax also operates about 100 stores across 80 cities, where borrowers can arrange loans. It also doesn’t make automated credit decisions but interviews first time borrowers over the phone.
Lufax will use the funds raised to expand its platform and aims to become the dominant platform for institutional investors to buy and sell financial assets, such as asset backed securities. According to Lufax it had a default rate of only 1% on its P2P products in 2014 and in February the platform had more than 7 million registered users.
Lufax added that the volume of P2P lending in China reached RMB 252.8 billon by the end of 2014 with the number of P2P borrowers growing fourfold year on year to about 630,000 and with the number of P2P lenders also growing fourfold to 1.2 million. Average loan value per borrower amounted to RMB 401,200 while 47% of the loans were used for short term working capital and 23% of the loans funded startup business.
Gregory Gibb, Lufax Chairman, said that the extra capital could also provide a cushion if Chinese regulators institute higher capital requirements for financial asset exchanges.
Gregory Gibb, Chairman and CEO of Lufax, commented on a panel at LendIt:
"Given the deleveraging financial system, supportive regulatory policies, and popularity of Internet finance products among consumers, the time is right for Internet Finance to become the next multi-trillion dollar growth market in China. Since our inception, Lufax has created a disruptive Internet finance business model that focuses on transparent marketplaces, diverse product offerings, and a best-in-class user experience. Our strategic vision is to use Internet technology to become the first choice for Internet finance in China."
The platform is looking to diversify out of merely focusing on P2P lending, as Gregory Gibb told the South China Morning Post:
"But now we are trying to be a much broader open platform. We can work together with funds, insurance companies and financial licence holders to bring in more selections of assets."
In January Gibb said that an important part of the platform is that they have a secondary market, and the need for liquidity in the space is growing. About 30% of monthly volume on the platform comes from the secondary market.
Gibb told Bloomberg that he thought the “vast majority of China’s more than 1,500 peer-to-peer lenders are going to fail, with as few as one in 20 surviving”. He said that this is because many of the businesses are pyramid schemes.
Interestingly, we reported earlier this year that Lufax have been put on a “blacklist” by the rating company Dagong Global Credit Rating Co. It is clear that this is a symptom of the lack of regulation in the Chinese space. Greater regulatory oversight would make it clearer to investors where to put their money and help prevent the fraud that is currently seen in the industry.