Finding Finance Online

　　SHANGHAI is the kind of city with a businessbuzz that sparks an entrepreneurial flame in manyyoung people chasing their dreams. Ding Fengting,20, a college sophomore from central China’s AnhuiProvince, is one of them. During the past two years shehas juggled her business passion with university studieswhile trying to find a gap for entrepreneurial ideas.

　　However, being cash strapped posed a major obstaclein her desire to launch an online shop selling trinkets.So, inspired by a roommate, she turned to Surong360for the start-up funds. Through the online finance platform,she raised 3,000 yuan ($489.9), just enough to gether shop up and running.

　　“It just took two days to get it,” Dingsaid. “The interestrate is lower from loan sharks but higher from banks,yet I couldn’t get such a small amount of money frombanks.”

　　Thanks to the emergence of peer to peer (P2P)lending websites such as Surong360, small businessentrepreneurs like Ding and individuals whose financingdemands are rejected by banks have found a new wayto solve their start-up financial woes.

　　Online micro-financing

　　Since the first P2P company, Paipaidai, appeared inChina in 2007, the industry has witnessed a rapid expansion.According to China P2P Lending Services IndustryWhite Paper 2013 issued on July 10, there were over 200formally registered P2P companies by 2012, helpingmore than 50,000 investors.

　　A report by Haitong Securities noted that the P2Pindustry was worth nearly 60 billion yuan ($9.78 billion)in 2012.

　　Most P2P companies cater to people whoseek relatively small loans, whether to attendschool, buy equipment like computersor cell phones, or start a small business.

　　After passing the website’s creditassessment, registered users can postthe amount required, reason the loan isneeded, the repayment plan and interestrate desired to search for matching partners.The websites play the role of a go-betweento connect borrowers with lenders andcharges transaction fees for revenue.

　　Established lending websites such asCreditEase, Paipaidai and Surong360 saytheir average interest rates are about 20 percent, comparedto Chinese banks’ one-year deposit rate of 3.5percent. “Although the rate is higher than that of banks,the platform offers a more quick and convenient alternativeto get loans and needs no collateral,” said Ding.

　　And for lenders, the rate is higher than depositingmoney in banks and there is no minimum amountrequirement. “Individuals could make an investment onour platform even if they have only 100 yuan ($16.34),”Liu Zefeng, CEO of Surong360, told ChinAfrica.

　　As an emerging industry, online micro-financinghas also attracted the attention of the government. Inits second quarter monetary policy report released onAugust 2, the People’s Bank of China gave a detailedelaboration on Internet finance and notes that its innovationon financing products and services fills the void oftraditional banking systems.

　　“Internet finance, including online lendingservices,helps solve the information asymmetry and credit problemsand provides more diversified financingproducts and services. These online platformsbenefit small business owners andindividuals as they reduce lending costsand disperse loan risks,” said the report.

　　Risks

　　On the other side of the thriving, a grayarea lurks in the online finance lendingwhere there has been no consensus onwhich financial authority should overseethem.

　　“These websites are actually doingfinancial transactions, so they should becontained in the nation’s regulatory system,”said Wu Qing, a research fellow with the Re-search Institute of Finance at the Development ResearchCenter of the State Council.

　　“Although they are not officially recognized by authorities,they are playing the role of mediating financialtransactions and are capable of mobilizing considerableamounts of capital. So the risk of the lending servicethey offer cannot be overlooked,” said Guo Tianyong,a professor with the Central University of Finance andEconomics.

　　“The penetration of the Internet allows more andmore people to have access to online financing. Amongthem, not everyone’s credit can be guaranteed. The risksof bad loans and defaults are huge,” said Guo.

　　Liu said there are also risks when P2P websitesconduct offline lending services under the banner of P2Pbusiness. “Some have diverged and are no longer pureP2P companies as they have to promise to guaranteeloans when offering offline services,” said Liu, addingthat the offline lending services are more risky and willthreaten the sound development of this industry.

　　Bai Chengyu, Secretary General of China MicrofinanceInstitution Association, expressed similar concern. “Turningfrom online to offline underscores advantages ofthe P2P lending service and increases transaction costs.Guaranteeing loans with no proper supervision adds risksto the P2P industry,” said Bai, noting that doing businessin this way may lead P2P companies to evolve into loansharks.

　　The China Banking Regulatory Commission recentlyissued a notice warning that some P2P companies areevolving into illegal financial institutes soliciting depositsand even conducting illegal fundraising.

　　Credit rating

　　Surong360 maintains its simple function as a P2P lendingservice provider despite fierce competition and ismaking efforts to find a new way to cultivate potentialclients with sound credit records, Liu said.

　　“Our way is to combine social networking withfinancing services and to restrict our clients to universitystudents and graduates,” said Liu.

　　In 2012, he took over Hahadai, a former P2P lendingcompany that was bankrupt due to a shortage offunds in July 2011, and changed its name to the currentSurong360.

　　“Firstly, Surong360 is a social networking platformwhere university students meet peers with good creditstanding,” said Liu.

　　“What borrowers depend on to get loans is their creditrating,” he added. To get money through Surong360, onehas to pass the credit rating assessment. Borrowers mustprovide their ID number and student ID information, aswell as invite more than two classmates to record a videoproving the borrower’s status as a student.

　　“University students grow with their credit rating bymaking repayments on time. When they graduate twoor three years later, they will have a solid credit standing,of which they could take advantage to pursue a bettercareer or start their own business,” said Liu.