A glimpse at how Qudian and China’s online micro lenders revolutionise financing

One day in July, Carina Shi awoke to incessant phone calls by angry, loud men, seeking repayment on a 20,000 yuan loan taken out by a friend.

“Debt collectors pummelled me with calls even after I explained that I wasn’t close” to the borrower, Shi said. “It was a petrifying experience.”

Unbeknown to Shi, the 20-year-old college student had been listed as the contact by a friend who defaulted on a loan borrowed from Qudian Inc, the Beijing-based online lender at the centre of the fourth-largest US initial public offering this year. Debt-collection calls only ceased after Shi called her friend’s mother in Inner Mongolia to resolve the debt.

Shi’s experience offers a glimpse into the inner workings of Qudian, a provider of micro loans that ballooned within three years into a sizeable lender offering a loans book of 38.2 billion yuan (US$5.6 billion) to 7 million active users during the first six months of 2017.

Ant Financial Services, an affiliate of the world’s largest online shopping platform Alibaba Group Holding – as well as owner of the South China Morning Post – was an early investor, leading a US$200 million round of funding for the company.

Qudian, founded by 34-year-old entrepreneur Luo Min in the Chinese capital, serves China’s young, mobile phone-savvy consumers who are underserved by traditional banks due to their lack of adequate credit data. The annualised interest rate on 59.5 per cent of loans lent last year surpassed 36 per cent, according to the company. That compares with between 12 and 14 per cent among the country’s largest commercial banks.

Platforms that provide micro loans mushroomed in China in 2009, a year after the subprime lending blowout strangled the US economy and contributed to the worldwide financial crisis. Chinese regulators, concerned about substandard loans among non-creditworthy borrowers, cranked up the pressure for co-signers on student accounts among banks.