Microcredit firm moves into online P2P lending

China Commercial Credit, the only mainland microcredit firm listed in the United States, will become the first such company to venture into peer-to-peer (P2P) lending as part of moves to expand beyond its base in Jiangsu province.

The company, based in Wujiang, will set up a P2P platform next month to match the financing needs of corporate borrowers with lenders, with loans guaranteed by microcredit firms across the mainland. It is also considering acquisitions as part of its expansion strategy.

"Online lending is the direction of the future," said Qin Huichun, the chairman and founder of the microcredit firm. "We aim to match 300 million yuan (HK$383.5 million) of financing online this year, 800 million yuan next year and 1.5 billion yuan in 2016."

While the operations of microcredit companies are restricted to their province of registration, the P2P online business will help overcome this constraint.

Moreover, online lending is subject to an annualised 24 per cent interest rate cap, much higher than the up to 18 per cent offline lending rate allowed for microcredit firms as stipulated by Jiangsu regulators.

China Commercial Credit's P2P unit, to be known as Pride Lending Club, is joining a crowded market. About 800 or more P2P firms have sprung up since 2006, copying the business model of US industry pioneer the Lending Club. These firms have tapped a niche in supporting the small private firms that have become victims of an unbalanced financial ecosystem on the mainland favouring bigger borrowers.

But a flood of defaults arising from weak risk controls by owners of P2P platforms has brought the attention of financial regulators. Measures to tighten oversight of the industry are expected.

China Commercial Credit plans to charge a 1 to 2 per cent fee for matchmaking, while micro-credit companies offering loan guarantees will receive a service fee of 4 to 5 per cent to be paid by the borrowers, Qin said.

The mainland has 7,839 microcredit companies, with combined outstanding loans of 819 billion yuan at the end of last year, according to the People's Bank of China.

Qin said his company was in talks with two rival microcredit firms over possible acquisitions.

Many microcredit companies are grappling with soaring bad loans as the economic slowdown that surfaced last year dented the profits of corporate borrowers.

In addition to the burden of rising labour and land costs, these borrowers have also been paying the price for breakneck expansion fuelled by Beijing's 4 trillion yuan stimulus in the wake of the 2008-09 global financial crisis.

The weakening trend in the real economy is now reflected in lenders' asset quality.

"At any time, risk control is the lifeline of our industry. We will kick off an inspection to Wujiang plants to check whether they are in full operation when migrant workers come back after the Lantern Festival, the end of the Lunar New Year," said Qin, referring to the need to monitor the financial health of borrowers.

China Commercial Credit's non-performing loan ratio climbed to 2.28 per cent at the end of September last year, with outstanding loans of US$90.5 million, according to the company. Qin estimated non-performing loans at the end of last year could be "slightly higher".

The company's shares traded at US$6.47 on Thursday, near its initial public offering price of US$6.50. It raised US$9 million in its Nasdaq offering in August last year.