Alibaba started up a peer-to-peer lending platform in April 2014 by the name of Zhao Cai Bao. Despite launching only around half a year ago, the lending marketplace is already worth about 14 billion yuan ($2.3bn). This is according to Yuan Leiming – General Manager at Alibaba’s financial arm and indeed CEO of the Zhao Cai Bao platform.
As if the 14 billion claim isn’t gaudy enough, Alibaba announced that its goal is to create a marketplace worth 1 trillion yuan ($163bn) of lending in as little as two years time. That number is at least 10 times the value of all global peer-to-peer lending activity at present.
Speaking at the Hong Kong Institute of Bankers conferemce, Yuan Leiming commented:
“There was a strong demand for investment products that provide higher returns. Think of us an exchange for loans.”
So how does Zhao Cai Bao work? A maximum of 200 investors may participate in each loan listed by the platform, but only after that loan has been guaranteed by a financial institution. This requirement is of course designed to bolster the chances of all loans being repaid. The cap on number of participating investors is an unusual feature. The reason for it is that every Zhao Cai Bao loan has a minimum investment amount which is specific to that loan – which is typically the loan size divided by 200.
Zhao Cai Bao has so far listed around 11,000 loans – with an advertised annualized return for terms of 6 to 12 months of at least 5.5%. The average loan size is roughly 70,000 yuan. The financial institutions used by the platform to guarantee loans include Ping An Bank Co., Zhongan Online Property and Casualty Insurance Co. There are over 40 of these institutions involved with the platform.
“I don’t think individual investors have the ability to evaluate the risks in the financial products, so it’s up to the financial institutions to screen the risks.”
Whether or not the Zhao Cai Bao can live up to its towering expectations in just 2 years is anyone’s guess. But Alibaba has something of a track record. The e-commerce giant’s money-market fund – Yu’E Bao – had attracted 574 billion yuan by the end of June this year, despite launching only a year previously in June 2013. The shorter-term goal for Zhao Cai Bao is for 1 million businesses and people to have issued loans via the platform by the close of 2014.