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.

That crackdown gave Qudian and other online lenders like Ppdai, Fenqile and Hexindai the niche to build a market, which expanded by 23 per cent in two years to 452.4 billion yuan at the end of last year. This is a market that’s been forecasted to 500 billion yuan by the end of 2018, according to Beijing-based consultancy iResearch. Advocates of such service argue that micro loans help underprivileged young people fund their tertiary education, give them seed money for entrepreneurship or help them realise their dreams.

Qudian went public last week in New York, raising US$900 million in an initial public offering and turning Luo into China’s latest technology billionaire, with a net worth estimated at US$1.2 billion, according to Bloomberg’s estimates. Ppdai and Hexindai are also seeking to raise capital in the US through IPOs.

“After witnessing the wealth-generation miracle made by the IPOs of Chinese internet companies, such as Tencent, Baidu and Weibo, investors don’t want to miss the high returns of such firms, therefore the high valuation,” said Li Chao, a fintech analyst with iResearch. “Compared with other well-established internet companies, fintech companies are still newborns and are facing uncertainty, not just in terms of regulatory levels, but also in public opinion.”

Since its IPO, Qudian has had to fend off negative publicity, as critics wrote on blogs about its high interest rate and murky workings. Critics say that the service amounts to predatory lending that preys on the naivety of young people, helping to bankroll what often are unsustainable lifestyles of conspicuous consumption.

Even China’s bank regulator stepped in, suspending campus loans in June amid reports that students were being forced by micro loan lenders to offer naked photos and videos of themselves as collateral. In extreme cases, defaulting borrowers were even forced into suicide.

In response to media criticism, Qudian’s founder Luo denied his company was forcing borrowers to seek financing from their relatives to repay their loans. The company, which keeps its delinquency ratio at under 0.5 per cent of borrowings, instead touts its edge in “big data and artificial intelligence” for contributing to its ability to collect on its loans.

Ant Financial, one of Qudian’s principal shareholders, declined to comment on the public censure. Alibaba’s finance affiliate, which operates the Alipay service, has a “strategic partnership” with Qudian through its credit assessment service Zhima Credit.