Are online small lenders here to stay?
Greg Au-Yeung says the world's much changed since the internet bubble of two decades ago
In China, a group of internet-savvy people are making real money in the virtual world: welcome to the brave new world of person-to-person lending.
There are limited investment options on the mainland: the market value of products like equities and mutual funds has dropped since last year; only the wealthy can afford the limited array of emerging wealth management products, while entering the property market also requires a substantial investment.
Person-to-person lending cuts out the intermediary. The 2008 financial crisis contributed in part to the industry's growth, and people can borrow money more cheaply than through banks. Zopa in the UK was a pioneer in the field. The mainland's first such lender, CreditEase, was launched in 2006.
According to an unofficial source, there are an estimated 100 such Chinese lenders in operation, with projected total outstanding loans this year of 18 billion yuan (HK$22 billion).
The attraction of this market is its relatively low entry barrier. As it is unregulated, an enterprise can be set up under an IT or consultant company with just a few million yuan.
In the person-to-person market, the minimum investment is 50 yuan, with maximum investor yield of about 20 per cent. It appeals to many investors. In contrast to the stock markets' high-frequency trading and complex instruments, it provides a straightforward matching platform for lenders and borrowers searching for the right terms (price, risk, duration).