Optimal Regulation of P2P Lending for Small and Medium-Sized Enterprises

17 Pages Posted: 11 Jan 2019 Last revised: 17 Jan 2019

See all articles by Naoko Nemoto

Naoko Nemoto

Asian Development Bank Institute

David J. Storey

Independent

Bihong Huang

Asian Development Bank Institute

Date Written: January 2, 2019

Abstract

Globally, the regulation of P2P lending has evolved significantly in recent years, with mostly beneficial effects on the diversification of funding for individuals and corporations. Regulatory responses have varied greatly between countries, and the characteristics of the markets that have emerged vary as a result. We describe and evaluate the range of P2P lending systems on offer to small and medium-sized enterprises (SMEs) in several countries, considering different regulatory regimes. In some countries, there are problematic incentives for platforms that rate credit and originate loans without holding the risk of these loans. In addition, when investor returns are guaranteed by platforms, investors have no incentive to distinguish among risk categories. In several countries, notably the People’s Republic of China, P2P platforms have engaged in fraudulent behavior and Ponzi-like schemes. On the other hand, stringent regulation in the United States has excessively impeded new entrants from providing competition to established platforms. Regulators should be mindful of these risks and others, while also seeking to capitalize on the benefits that the sector offers for providing new funding opportunities to SMEs. In our view, the United Kingdom can be suggested as an effective model to follow because of its tailor-made and flexible regulation.

Keywords: fintech, P2P lending, regulation

JEL Classification: F34, F38, G23

Suggested Citation

Nemoto, Naoko and Storey, David J. and Huang, Bihong, Optimal Regulation of P2P Lending for Small and Medium-Sized Enterprises (January 2, 2019). ADBI Working Paper 912, Available at SSRN: https://ssrn.com/abstract=3313999 or http://dx.doi.org/10.2139/ssrn.3313999

Naoko Nemoto (Contact Author)

Asian Development Bank Institute ( email )

Kasumigaseki Building 8F 3-2-5
Kasumigaseki, Chiyoda-ku
Tokyo, 100-6008
Japan

David J. Storey

Independent

Bihong Huang

Asian Development Bank Institute ( email )

Kasumigaseki Building 8F
3-2-5, Kasumigaseki, Chiyoda-ku
Tokyo, 100-6008
Japan

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
351
Abstract Views
1,193
rank
107,934
PlumX Metrics