China is now the largest peer-to-peer (P2P) lending market in the world. The idea is quite simple: enable individuals and small enterprises to borrow and lend money bypassing the official financial intermediaries. Considering the high costs of borrowing through traditional banking institutions and the lack of flexibility of bank instruments when it comes to consumer loans, it is not surprising that the demand for new financing channels in China is huge. According to the ACCA survey more than fifty percent of the users of P2P loans had not previously borrowed from the traditional financing sources.
So, the main advantage of using P2P lending platform is that borrowers who might have been rejected financing from banks, now have easy access to the needed funds. The lenders can benefit by asking higher interest on the loan to compensate for the higher risk they are taking. The P2P platform connects the potential borrowers and investors charging a small service fee.
Ezubo used to be one of the online platforms that provided P2P services. The company was created in 2014 and quickly became one of the biggest P2P lenders in China. The company presented itself as “an Internet-based financial leasing industry financial platform, … committed to exploring multi-level financial intermediation channels between the rental market, as the lessor, the lessee and investors to build an efficient, immediate bridge financing, providing middle-market support, build a hassle free investment environment”. In 2015 the company’s website offered several investment opportunities in leasing projects with maturity ranging from 3 to 12 months and fixed annualized interest income from 9 to 14,6 percent. It was possible to invest as little as 1 yean in the preferred project and withdraw money after 30 days. The interest was supposed to be paid monthly.
According to Bloomberg Ezubo managed to attract about 4.9 million investors and a total of 73 billion yuan ($11.4 billion). However, in the beginning of December 2015 the company was shut down by the chinese authorities and in February 2016 the police arrested 21 executives on charges of fraud. Allegedly, most of the investment projects were falsified and the money coming from investors was used on paying interest and dividends. Also the police dug up 80 bags of financial statements, which were buried 6 meters underground in a southern province of China.
Although the collapse of Ezubo is one the largest recent cases of financial fraud in China, it is not the only case on the P2P market. A number of similar companies on the Chinese market were failing recently due to high percentage of defaults on loans. The situation with Ezubo uncovered the need for changes in regulation on the P2P market.
Katherine Kotova
So, the main advantage of using P2P lending platform is that borrowers who might have been rejected financing from banks, now have easy access to the needed funds. The lenders can benefit by asking higher interest on the loan to compensate for the higher risk they are taking. The P2P platform connects the potential borrowers and investors charging a small service fee.
Ezubo used to be one of the online platforms that provided P2P services. The company was created in 2014 and quickly became one of the biggest P2P lenders in China. The company presented itself as “an Internet-based financial leasing industry financial platform, … committed to exploring multi-level financial intermediation channels between the rental market, as the lessor, the lessee and investors to build an efficient, immediate bridge financing, providing middle-market support, build a hassle free investment environment”. In 2015 the company’s website offered several investment opportunities in leasing projects with maturity ranging from 3 to 12 months and fixed annualized interest income from 9 to 14,6 percent. It was possible to invest as little as 1 yean in the preferred project and withdraw money after 30 days. The interest was supposed to be paid monthly.
According to Bloomberg Ezubo managed to attract about 4.9 million investors and a total of 73 billion yuan ($11.4 billion). However, in the beginning of December 2015 the company was shut down by the chinese authorities and in February 2016 the police arrested 21 executives on charges of fraud. Allegedly, most of the investment projects were falsified and the money coming from investors was used on paying interest and dividends. Also the police dug up 80 bags of financial statements, which were buried 6 meters underground in a southern province of China.
Although the collapse of Ezubo is one the largest recent cases of financial fraud in China, it is not the only case on the P2P market. A number of similar companies on the Chinese market were failing recently due to high percentage of defaults on loans. The situation with Ezubo uncovered the need for changes in regulation on the P2P market.
Katherine Kotova