Dear MEL Topic Readers,
China has an online lending crisis and people are furious about it
Peer-to-peer (P2P) lending is a method of debt financing that enables individuals to borrow and lend money. P2P platforms connect borrowers and investors online. They attract lenders with interest rates that are much higher than conventional saving or investment financial options like bank saving accounts or money market funds. They also provide borrowers, such as start-ups and small businesses with access to financing that traditional lenders don’t. Sounds like a win-win business model, doesn’t it?
However, there is a fundamental rule in financing. The higher the expected return is, the higher the risks are. And in the market where such financial service is loosely regulated, there are cases that the promised returns on investment are not paid, and in some cases, the initial money invested is entirely gone when the lending service company suddenly disappears. That is what is happening in China where there are a lot of eager investors who believed that the money invested was secured and the promised interests would be paid.
However, such rapidly increasing alternative financing services had not been strictly regulated like traditional banks, and as a result, there have been increasing cases of fraud. Then what happens to the investors?
Enjoy reading and learn the promises and risks of P2P lending service.
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