China has released its draft proposals to overhaul its growing alternative lending industry in an effort to impose regulatory safeguards on the market.
Reports published on Monday (Dec. 28) said Chinese authorities have promised to “cleanse the market” of predatory lending practices and fraud, releasing a list of new, proposed restrictions that reports said would be a first for the peer-to-peer small business lending market.
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Among those restrictions is a ban on online lending platforms taking deposits from the public. They also would not be allowed to pool investor funds or guarantee returns, said the China Banking Regulatory Commission (CBRC).
Reports said that the CBRC’s proposals are based on the concept that online lending platforms are simply intermediaries to link small business borrowers to investors and, therefore, should not be directly raising or lending money.
For some players, this proposal is a sign that authorities will cut the alternative lending industry off at the knees.
“The rule is quite strict,” said Maizi Financial Services, which operates a P2P lending site and other alternative lending platforms, to Bloomberg. “The industry’s hope of upgrading itself with wealth management products and adopting a diversified business model is completely dashed.”
Authorities have also proposed that these platforms register with local financial regulators.
According to reports, there are currently 2,612 online lending platforms in operation in China, as of November. An additional 1,000 were deemed “problematic” by the CBRC.