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Entrepreneurs are increasingly turning to P2P platforms and other forms of internet financing. Photo: SCMP Pictures

China's P2P lenders offer relief to small entrepreneurs

Mainland firms are borrowing from peer-to-peer platforms attracted by their speed and flexibility

When Chinese flight booking operator Baitour needed cash to grow its business last year, it opted against using Industrial and Commercial Bank of China, its long-term lender, turning instead to internet finance start-up Jimu Box.

For Baitour, getting funds via Jimu Box, a peer-to-peer (P2P) online platform that matches lenders and borrowers, was quicker and required no upfront collateral.

Borrowing from banks "was tough, really tough", Baitour vice-president Tian Xiaoming said. "We couldn't get the funds we needed from the bank. Peer-to-peer turned out to be the best alternative."

Despite repeated cuts in China's official interest rates to boost the slowing economy, local banks appear reluctant to lend to potentially high-risk small companies, a trend similar to the credit crunch that plagued Europe during its own slowdown.

Seeking cash, an army of entrepreneurs is increasingly turning to P2P platforms and other forms of internet financing, posing a dilemma for Chinese regulators, who want to lift growth but are wary of these unregulated credit pools.

P2P credit stands at US$53 billion in China, according to P2P001, a widely followed website for internet lending.

While only a fragment of total bank lending it poses a threat to the traditional banking model since by quickly pooling funds, P2P platforms do away with the need for a bank intermediary between lender and borrower.

Jimu Box, which became a top 10 Chinese P2P player in two years, responded to Baitour's loan application in one day, compared to ICBC procedures lasting several months, said Tian.

Since June 2014, the ticketing business has borrowed US$19.9 million from Jimu Box, sliced in hundreds of short-term micro-loans spread across individual lenders who were lured by attractive returns.

While banks use internal rating systems and business plan analysis to assess loan risk, P2P players use computer algorithms to wade through personal data.

Dianrong.com asks borrowers to allow it to purchase data from credit card company UnionPay to assess cash flow and can lend using future income as collateral.
Dianrong.com also uses public shaming as a tool. The platform requests access to a borrower's Weibo account. If payment is missed, Dianrong.com posts a request for help with payment, embarrassing the borrower.

Although P2P emerged to fund individuals and small companies, it is also proving attractive to China's cash-strapped property industry.

Greenland Hong Kong Holdings said in late March it had set up an online platform that connects property developers and investors with financing and investment opportunities.

Beijing-based Modern Property has raised more than 40 million yuan (HK$50 million) this year from four crowdfunding campaigns, online financing similar to P2P.

"It lowers intermediary costs, including refinancing costs and marketing fees and speeds up sales," Modern Property president Zhang Peng said.

This article appeared in the South China Morning Post print edition as: P2P lenders a lifeline for small entrepreneurs
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