Designing Optimal Regulation for Financial Innovation in Capital Raising - Regulatory Options for China's Peer-to-Peer Lending Sector
(2016) 31(3) Banking & Finance Law Review 539-572
30 Pages Posted: 24 Aug 2016
Date Written: August 21, 2016
Peer-to-peer lending or P2P lending is an Internet-based transactional platform in which lending is conducted on an individual-to-individual basis. The online lending company provides the platform for the lending transactions. The borrower’s need for funding is published on the platform after it is vetted, and lenders are free to provide funding. This transactional model presents a new source of credit for borrowers and a potential investment channel for those with capital to lend. P2P lending does not involve banks, and is therefore referred to as credit disintermediation, which is both popular with, and cost effective to, investors and borrowers. Since 2011, the P2P sector has experienced an explosive growth in China. This phenomenon can be explained by the P2P sector’s supplementary nature, satisfying the financing needs of borrowers without the involvement of the formal banking sector. In a stark contrast with its popularity, the regulation of the P2P lending sector remains limited. This article examines the market players in the P2P sector, and proposes a variety of regulatory options with the aim of ensuring market order and efficiency.
Keywords: P2P, Regulation, Risks
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