Because P2P lending deals primarily with small-ticket-size unsecured loans, the chances of delinquency are invariably higher than conventional lending activities. Among the 26 given sentences over the scam was Ding Ning, Ezubao… It’s just my salary for half a year.”, Ponzi Scheme in China Gained Credibility From State Media. He added "Did provincial regulators know? The Chinese authorities have accused the firm of running an enormous Ponzi scheme. This is usually done through specially-appointed recovery agents. Luo Kaichen, 30, said he decided last July to invest 1 million renminbi in Ezubao, at an interest rate of 14.6 percent. Earlier, two businesswomen in southern China were sentenced to death in 2012 and 2013 in separate cases on charges of “illegal fundraising.” The penalty for the first was converted to a prison term following an outcry online that it was too severe. But authorities say a former executive admitted 95 percent of those borrowers were fictional entities created by Ezubao. In countries like China, the UK, and the US, peer-to-peer lending platforms already have a loan guarantee plan in place for lenders. Commenting on the impact the RBI regulations will have on the country’s peer-to-peer lending sector, Rupaiya Exchange founder Rohan Hazrati told Inc42: “Providing and proving trust will be the foremost challenge for any platform. The founder of a Chinese online peer-to-peer lender has been sentenced to life in prison on charges he defrauded investors of $7.7 billion in one of China’s biggest financial scams. The seizure of Ezubao prompted protests by depositors who complained the government failed to protect them. We have updated a section under the sub-head, “The Risk Of Unsecured Loans.”. “Those advertisements usually would require strict vetting,” he said. A series of lenders have collapsed as economic growth slowed, leaving authorities struggling to defuse protests by depositors. In a race to overtake the competition, companies have, in the past, resorted to fraudulent means. The risk of loan delinquency (defaulting) depends greatly on what the peer-to-peer lending company has set out to achieve. In April 2016, reports surfaced that Lending Club’s then-CEO Renaud Laplanche had to resign amidst controversies surrounding misdated loans and conflicts of interest. Download premium images you can't get anywhere else. Ironically, the very things that attract investors and borrowers to P2P lending are also what adds to its risks and vulnerabilities. One of the reasons the RBI is looking to regulate the peer-to-peer lending industry in India is to mitigate the risk of cyber breaches. In such instances, banks are usually reluctant to lend money to SMEs, especially those operating for less than a year. For the uninitiated, WannaCry is a crypto-worm that infected up to 300,000 computers running Microsoft Windows encrypted data, and even locked users out. Sign up for free newsletters and get more CNBC delivered to your inbox. Amazon, Flipkart Likely To Be Fined For Not Displaying Country Of Origin Tag, Fashion, Furniture Brands Grab The VC Limelight In India’s D2C Space. The facts used in the subhead date back to 2015 and 2016, hence cannot be termed as recent. With the fall of traditional lending institutions such as Lehman Brothers and Bear Stearns amidst the subprime mortgage crisis in the US, alternative lending practices emerged as viable models that promised low-interest rates for borrowers and high returns for lenders. In India, especially, the peer-to-peer lending domain is largely unexplored. All quotes delayed a minimum of 15 minutes. In the UK, Quakle ceased operations in 2011, as a result of a near-100% default rate. There were the positive profiles in state-controlled media, as well as the company’s advertising on official TV. The demise of Ezubao highlights a precarious challenge for the Chinese government. Ezubao’s website has been shut down and it appeared Yucheng Group’s Beijing office had been closed when Reuters reporters visited before Monday’s Xinhua report. Neither could be reached Friday for comment. According to a Reuters 2015 report, unsecured personal loans constitute 4% of all loans in India. The opacity that usually surrounds peer-to-peer lending companies, especially pertaining to methodology and long-term vision, is something that lenders and borrowers should be wary of. As per recent reports, the RBI norms have already been finalised and will likely be released before July-end 2017. We all are victims.”. Scant information about borrowers is another major issue that deters large institutional investors from participating in peer-to-peer lending. There was the section of his company’s website devoted to building Communist Party spirit. We have now updated it as the “developments in the past”. Ezubao unexpectedly stopped trading in December 2015. © 2020 CNBC LLC. “Many people joined Ezubao because they saw the support from the government and from some government officials,” said Feng Zhe, 36, a Beijing resident who worked as a salesman at the company from June of last year until December. Xinhua said authorities have confiscated the company’s assets to repay depositors but gave no indication how much money was recovered. His firm is accused of offering mostly fake investment products to its nearly 1 million investors. In general, banks have an extensive database of borrowers’ savings and credit history. Ding Dian, the brother of the chairman, was also sentenced to life and fined 70 million Chinese yuan ($10.7 million). What followed was a country-wide hysteria as part of what is now considered the largest financial scam in Chinese as well as global history. In March 2016 alone, $47.4 Bn (INR 2,96,800 Cr) was issued as personal loans to the country’s 1.31 Bn population. Regulators allowed private sector lending to support entrepreneurs who create China’s new jobs and wealth but are largely shut out of lending by the state-owned banking industry. Until the authorities cracked down on the operation in December 2015, around $150 Mn had been spent on buying real estate, high-end sports cars, and luxury goods by the founder who was fond of the high life.

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