Co-author: Tyler Aveni
In 2016, peer-to-peer (P2P) lending in China surpassed the US$100 billion threshold and confirmed China as the world’s largest P2P lending market, leaving North America a distant second. This tremendous growth was driven by a mix of circumstances, including: (i) well-developed saving culture, (ii) low interest yields on savings accounts, (iii) widespread online connectivity, (iv) cheap smart phones, (v) indifference of traditional financial institutions to serving poor individuals and SMEs, and (vi) benevolent regulation.
For some time, Chinese regulators refrained from interventions and let the industry grow and evolve—taking a “wait-and-see” approach. While this has helped to grow the industry, it has also created some issues and led to a focused regulatory intervention resulting in a drop in the number of P2P platforms from more than 3,000 platforms in 2015 to 2,448 in 2016.
The central government realizes the potential P2P lending has for the neglected retail financial segment, particularly in rural areas. It has been even experimenting with measures to leverage the industry to improve access to finance by the unserved and underserved.
The Brief is written for researchers, development professionals, industry participants, and policy makers interested in crowdfunding and P2P lending, and how those phenomena have been playing out in China in the context of efforts to promote financial inclusion through digital financial services and FinTech. The Brief (i) provides an overview of the crowdfunding industry in China, with a specific focus on P2P lending, (ii) describes the wait-and-see approach, (iii) examines potential significance of P2P lending for financial inclusion, and (iv) outlines policy lessons gleaned from the development in China. It also includes a brief explanation of the terminology used in China to help readers avoid confusion and misinterpretation when trying to understand the market.