Emerging online financing platforms, as part of the sharing economy, are likely to be risky in their early stages, experts said on Thursday, urging that better risk management and information systems should be built.
Rising concerns about problematic online financing tools have highlighted the necessity of building better data-processing systems, Yao Yudong, head of the Research Institute of Finance and Banking at the People's Bank of China, the nation's central bank, told a conference held in Beijing on Thursday.
"For example, some peer-to-peer (P2P) lending platforms, which ideally should be used to better allocate financial resources, have become a concern after … cases of fraud or rumors of disappearing managers," Yao said, noting that establishing a mature business model is a must.
On the one hand, investors have to realize that they may lose money with P2P platforms, especially if they're promised high returns, remarked Yao.
"On the other hand, P2P lending platforms absorb a large pool of cash, which should be monitored by the third-party institution to avoid potential risk," he mentioned.
P2P lending has become popular in China in recent years, as it's seen as a more efficient fundraising channel.
However, the number of troubled firms in the P2P sector - for example, Ezubao - has increased since 2015. The government has vowed to crack down on illegal online financing activities, which has driven down the number of P2P lending firms, media reports said on Wednesday.
The total number of P2P platforms was 2,431 by the end of April, down 30 from the end of March, the reports said. However, the transaction volume was up 4.9 percent from March to 143.1 billion yuan ($22 billion) in April.
It is relatively safer for companies in the same "circle" that offer online financing services, for example Internet giants Alibaba Group Holding and Tencent Holdings, as they have access to various data and know how to use that information to evaluate borrowers' credit standing, Qian Jun, professor of the Shanghai Advanced Institute of Finance of Shanghai Jiao Tong University, said at the Thursday conference.
"Alleviating the information asymmetry between borrowers and lenders is crucial," Qian noted.
