Heightened regulatory scrutiny has left online lending platforms hard hit, with a plunge in the launch of new platforms and failure on the part of liquidated entities to make compensate depositors and investors.
Public data indicates that May saw the launch of only 4 new online lending platforms, for a drop of 82.6% compared to the same period in 2017.
Since the start of June alone several popular online lending platforms in China have announced the suspension of operations and entered liquidation, for reasons include severe delays in payments or financing chain difficulties.
These include Xiaohuixiong Jinfu (小灰熊金服), which has promised to pay back lenders principal and interest in full by 31 October, as well as Weilong Wang (微龙网), who say they expect to pay off small accounts under 100,000 yuan in six months, and larger accounts of more than 100,000 yuan within 3 years.
Liquidation of online lending platforms in China primarily results in one of three outcomes:
i) Instalment liquidation, with a set percentage of funds collected paid back within a stipulated timeframe, as is the case with Xiaohuixiong and Weilong.
ii) Equity transfer, with the creditor’s rights of investors converted into equity in the platform, which was one of the options offered by the recently troubled Woshi Dai (沃时贷).
iii) Discounted repurchase, which involves the division of the investment sums of investors into separate grades, and repayments made at a variety of discounts depending on these grades, invariably causing them to incur huge losses.
Investors in online lending platforms said to National Business Daily that many lending platforms are failing to make good on their commitment to repay principal and interest following liquidation, with some managers absconding completely.
One investor in an online lending platform said that he wasn’t optimistic about the outcome for liquidation proceedings. “I don’t hold high hopes…there’s a good likelihood I won’t ever get the principal back.”
Another source from a Chinese law firm said that many investors are also unwilling to pursue legal proceedings against online lending platforms that run aground, given their excessive length and difficulty.