Chinese firms explore investment opportunity in India's online lending sector

Indian online peer-to-peer (P2P) lending sector is currently at nascent stage. The rise in need of alternative credit models and lending products in the Indian market has led to significant growth in the last couple of years and attracting global investors into the sector.

Looking at its vast potential, Chinese firms such as WeShare, 9F Group and CashBUS, eyeing the space have been looking for an opportunity to invest in P2P lending space in India. In August 2018, CashBUS, had invested in Indian microcredit card provider Olly credit.

Several Chinese firms are eager to get the share of online P2P lending in the country as many firms have reportedly undertaken necessary due diligence for investment. The Chinese firms are looking to back the existing firms, said an ET report.

Since many of them have no clarity on RBI regulation about setting up online lending platform, they are waiting for further clarification on norms.

In 2018, the RBI had in a guideline restricted single lenders from lending more than Rs 10 lakh across P2P platforms. It also restricted borrowing for a single firm to Rs 10 lakh.

The central bank is also reported to raise the limit for individual lenders to range between Rs 25-50 lakh.

Currently, foreign investors are allowed to back P2P companies through the FDI route.

With the rising number of smartphone users, P2P lending has grown at a faster pace and showing a noticeable rise in the number of both borrowers and lenders in India. At present, about 11 companies have been given NBFC P2P licences. Platforms like Faircent, Lendbox, LendenClub, and i2iFunding are major players in the segment.

In India, more than 150 million consumers are eligible for credit, as per TransUnion CIBIL’s report. MSME sector has an unmet demand for credit of around Rs 25 trillion, according to ICRA.

P2P lending in India is set to grow into a $ 5 billion industry by 2023.

One of the major reasons for the Chinese firm to look towards India is heavy regulation on the industry in their own country.

In China, the online lending industry was majorly hampered by the alarming defaulting rate and sliding faith of lenders largely due to its being not well regulated.

China P2P lending market, which is considered largest in the world with 50 Mn users and outstanding loan size of around $193 billion, has been witnessing rapid shut down largely due to reports of defaults, sudden closures, and frozen funds.

Last year, more than four thousand P2P lending platforms were penalised (under investigation by police or unable to repay investors) after the Chinese regulator crackdown. A few of the firms were also found to be involved in raising funds illegally and running Ponzi schemes busted after the crackdown.

P2P platforms like Qian88 and Lqgapp shut down added to the panic among investors and borrowers in China.