Non-bank lenders back in the game

Private non-bank lending in China is once again in full flow.

After nearly two years riding out the mainland's underground banking woes, person-to-person lending platforms have regained their vitality and are throwing cash-hungry small businesses and individuals a new lifeline.

There are now about 800 P2P online platforms dealing with matchmaking businesses for lenders and borrowers. These activities support the small private firms that are victims of the mainland's unbalanced financial ecosystem.

Mainland banks are reluctant to extend credit to small businesses for fear of creating a bad debt problem for themselves owing to the lack of financial firepower in the small business community.

The formerly illegal underground banking practices were rampant in Wenzhou, with intermediaries raising funds from wealthy people before lending them to cash-strapped small businesses. The system collapsed in late 2011, battered by economic turbulence at home and abroad.

The crisis, however, did not stop private lending - or lending through the non-banking system - from operating. The P2P micro-finance platforms, banking on the increasing popularity of the internet on the mainland, have mushroomed in the past two years.