The Chinese Academy of Social Sciences has released a Risk Rating Report of online lending platforms.
In the report the companies were given a rating regarding their risk level – five companies received scores over 80 and are rated AA companies, 20 companies received scores between 70-80 and are rated as A, and other companies received scores below 70 and are rated as BBB or lower.
For example some of the well-known platform’s ratings are:
-Lufax.com, owned by China Ping An Group, ranked 1st, scored 89, rated AA
-Renrendai.com, ranked 2nd, scored 83, rated AA
-9fbank.com, ranked 3rd, scored 81, rated AA
-Yooli.com, ranked 16th, scored 71, rated A
-Jimubox.com, ranked 20th, scored 70, rated A
-Yirendai.com, ranked 26th, scored 69, rated BBB
The risk evaluation system used in the report has four main elements: credit risk, operation risk, legal compliance risk and liquidity risk and was complied using over 100 different indexes.
The report shows that there is a vast difference in the risk structures of the platforms. Li Yang, Vice President of Chinese Academy of Social Sciences, commented:
“The report [is] aimed at reducing the risk of P2P lending platforms and helping the healthy growth of Internet finance industry by releasing an evaluation index.”
Yang Xiaojun, the former Deputy Director of Innovation Department of China Banking Regulatory Commission and present Vice President of Lufax.com, explained:
“Internet finance is a new engine of the economy under China's New Normal status. P2P lending industry will play a magnificent role under China's New Normal status. Numerous small and medium-sized and micro enterprises will become important driving force to promote the industry's development.”
Keaton Sun, the Founder and CEO of 9fbank.com, the leading mobile finance company in China, who has more than 18 million users, added:
“Mobile finance is the future of Internet finance industry. The competitive advantage comes from the social networking, scenarios and customization features of mobile Internet.”
According to Online Lending House, China’s peer-to-peer lending in April surged 2.7 fold from a year earlier to a record 55.1 billion yuan (US $8.9 billion).
However, fraud in the industry continues to rise. At the end of April an official from China’s Inter-Ministerial Joint Office reported the number of incidents involving illegal fundraising rose 11 times in 2014 and is on track to raise 16 times the 2013 figure in 2015. In 2014, 8,700 cases were filed and 2,200 were filed this year in January and February alone, according to the Ministry of Public Security.
One of the problems Chinese platforms face is that there is no public credit rating system, like the FICO score in the US, and so platforms have to do their own due diligence or outsource it to someone else. And of course it varies between platforms as to how successful they are at doing effective due diligence.
Online Lending House estimated that there were 52 fraudulent platforms still operating last month, down from 56 in March. It is thought that the scammers will not leave the system until proper regulation is introduced. We reported a month ago that we are about to see regulation come into the China P2P space.
It is thought draft regulation will be introduced at the end of June as Zhu Mingchun, secretary-general of Guangdong Internet Financial Association, confirms:
“The supervision aims to clean up fraud platforms as well as allow room for further developing the industry. We see the regulations to be launched by the end of June.“
It will be interesting to see if regulation really is the panacea to the current issues of fraud within Chinese peer-to-peer lending. The platforms will need to adapt to the new legislation, but it seems unlikely that the regulations will do much to slow down the incredible growth of the market in China.