China's P2P lenders offer relief to small entrepreneurs
Mainland firms are borrowing from peer-to-peer platforms attracted by their speed and flexibility
When Chinese flight booking operator Baitour needed cash to grow its business last year, it opted against using Industrial and Commercial Bank of China, its long-term lender, turning instead to internet finance start-up Jimu Box.
For Baitour, getting funds via Jimu Box, a peer-to-peer (P2P) online platform that matches lenders and borrowers, was quicker and required no upfront collateral.
Borrowing from banks "was tough, really tough", Baitour vice-president Tian Xiaoming said. "We couldn't get the funds we needed from the bank. Peer-to-peer turned out to be the best alternative."
Despite repeated cuts in China's official interest rates to boost the slowing economy, local banks appear reluctant to lend to potentially high-risk small companies, a trend similar to the credit crunch that plagued Europe during its own slowdown.
Seeking cash, an army of entrepreneurs is increasingly turning to P2P platforms and other forms of internet financing, posing a dilemma for Chinese regulators, who want to lift growth but are wary of these unregulated credit pools.
P2P credit stands at US$53 billion in China, according to P2P001, a widely followed website for internet lending.
While only a fragment of total bank lending it poses a threat to the traditional banking model since by quickly pooling funds, P2P platforms do away with the need for a bank intermediary between lender and borrower.