- This is an excerpt from a story delivered exclusively to Business Insider Intelligence Fintech Briefing subscribers.
- To receive the full story plus other insights each morning, click here.
One of China’s biggest peer-to-peer (P2P) lenders, Dianrong, is looking to raise $100 million to help cope with a regulatory crackdown that’s already led the firm to lay off as many as 2,000 workers, per the Financial Times.
Business Insider Intelligence
Dianrong is attempting to raise the funds from new and existing investors including Singapore sovereign fund GIC and Standard Chartered Private Equity. The new capital is intended to help the firm survive until regulators begin accrediting a select number of P2P lenders.
Here’s what it means: China’s clampdown on alt lenders has taken its toll and Dianrong’s attempt to raise the new funds may be a shot in the dark as regulatory uncertainty lingers.
- Amid a wave of defaults, fraudulent practices, and investor anger, authorities have taken steps to curb the industry. Incumbents’ unwillingness to lend, a growing cash-rich middle class, and an absence of regulatory oversight helped China’s P2P lending space gain considerable traction. However, that same absence of legal oversight has seen a raft of duplicitous platforms emerge. In an effort to clean up the industry, authorities have been cracking down on P2P lending practices, leaving more than 80% of the country’s 6,200 P2P lenders either troubled or closed for good, according to Yingcan cited by Bloomberg.
- But regulatory uncertainty around licensing is stymieing firms like Dianrong. When regulators introduced measures to clean up the industry, players were expected to register with local authorities to receive licensing to operate. However, the criteria firms need to abide by in order to receive licenses remains unknown, per the FT. This regulatory limbo means players continue to operate in the dark, making raising capital much harder. Dianrong’s cofounder Kevin Guo has already pumped $10 million of his own money into the company to reassure investors, for instance.
The bigger picture: We expect the regulatory crackdown to foster a more robust P2P industry — but regulators need to move fast to curb the fallout.
Regulatory efforts to clean up the space are welcomed, but continued limbo will hurt those that have invested in P2P platforms. New licensing requirements will result in fewer players surviving: Analysts at China International Capital Corp estimate that only 10% of the existing platforms will be operational in three years, for example.
This is likely to ensure that the P2P industry in China will be populated by more legitimate platforms, while also making it easier for authorities to weed out bad actors. The requirements could also see consolidation in the industry as smaller, struggling players get scooped up by authorized firms looking to dominate the market.
However, authorities need to act fast as the continued lack of clear-cut guidance will hamper players of all sizes, which will not only slow down the progress of these firms, but also place consumers who’ve invested in these platforms at greater risk.
Interested in getting the full story? Here are two ways to get access:
1. Sign up for the Fintech Briefing to get it delivered to your inbox 6x a week. >> Get Started
2. Subscribe to a Premium pass to Business Insider Intelligence and gain immediate access to the Fintech Briefing, plus more than 250 other expertly researched reports. As an added bonus, you’ll also gain access to all future reports and daily newsletters to ensure you stay ahead of the curve and benefit personally and professionally. >> Learn More Now
- AI insurtech Lemonade nabs a $300 million investment
- Physical ATM attacks in Europe were on the rise for the fourth consecutive year in 2018
- Fintech unicorns are leading job creation in London