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The Meteoric Rise and Spectacular Fall of Peer to Peer Lending in China

The world’s largest peer to peer lending market may soon cease to exist

October 23, 2019 By Peter Renton 3 Comments

Views: 2,695

When we started LendIt in 2013 I had no idea that China was a hot bed of peer to peer (p2p) lending. But there I found myself talking with several leaders from the Chinese p2p lending industry at the first LendIt back in June 2013. We did no advertising in China but many got wind of the event and traveled to New York City to be there. It was then that I found out the massive scale the industry had already achieved in the world’s most populous country.

I first wrote about the Chinese p2p lending industry later that year and introduced the west to CreditEase, the company that was the largest p2p lending platform in the world. Over the next couple of years the industry thrived with thousands of platforms launching and the total loan volume skyrocketing to over $150 billion in 2015, which was four times the loan volume of 2014. In hindsight, we should have known that kind of growth in a lending industry is not just unsustainable, it is highly risky.

China’s Biggest Ever Financial Scandal

We got the first inkling that something was not quite right when China was rocked by the biggest financial scandal in its history. Ezubao, one of China’s largest p2p lending platforms, collapsed as it was revealed the business was nothing more than an elaborate Ponzi scheme. Around 900,000 investors collectively lost $7.6 billion in what was the second largest Ponzi scheme the world had ever seen (Madoff being the largest).

But the industry rationalized this away as just one bad apple. The regulators had just announced draft rules for the industry at the end of 2015 and there was a sense that the strong platforms would adapt and continue to perform well. And that is what happened for the next year or so. But by 2018 serious problems began to emerge. That year ended up being the year of reckoning for the industry.

The p2p lending industry had grown to around 4,000 platforms at its height which everyone agreed was not a sustainable number. The weak platforms were not going to make it but the trouble was as they failed they often took investor money with them. While there was definitely some fraud there were also cases of platforms that meant well but were simply unable to make online lending work.

Life Savings Invested in P2P Lending

[Read more…]

Filed Under: Peer to Peer Lending Tagged With: China, credit risk, investing, LendIt China, online lending, Originations, ponzi scheme

Views: 2,695

Massive $7.6 Billion Fraud at Large Chinese P2P Lending Platform

The biggest financial fraud in Chinese history has been perpetrated by executives from Ezubao, a large P2P lending platform.

February 2, 2016 By Peter Renton 9 Comments

Views: 1,278

Chinese p2p lending fraud

The scale of the fraud is breathtaking. Around 900,000 individual investors have collectively been bilked out of US$7.6 billion, according to Chinese officials, in one of the largest Ponzi schemes ever conceived.

While the total money involved is less than the infamous Madoff Ponzi scheme the number of people involved is far greater. Ezubao, until a couple of months ago one of the top 10 largest P2P lending platforms in China, has been shut down and 21 executives have been arrested. Even though Ezubao only launched in July, 2014 it quickly grew, attracting hundreds of thousands of investors with promises of 9-15% returns.

It has been reported that an estimated 95% of all borrower listings on Ezubao were fraudulent. Meanwhile the top executives used investor money to enrich themselves – spending on items and gifts including real estate, cars and luxury goods, according to the Xinhua news agency.

A Blow to P2P Lending in China

[Read more…]

Filed Under: Peer to Peer Lending Tagged With: China, fraud, ponzi scheme, regulation

Views: 1,278

Some People Think P2P Lending is a Ponzi Scheme

August 10, 2012 By Peter Renton 15 Comments

Views: 725

P2P Lending is not a Ponzi SchemeIn the past couple of weeks I have had two emails and one conversation on Twitter about Ponzi schemes. Some people have the idea that with the returns claimed by Prosper and Lending Club p2p lending must be a Ponzi scheme.

Really?

It seems that in the era of Bernie Madoff and Allen Stanford people are more suspicious. In this low interest rate environment anyone claiming fixed interest returns of 8% or more must be viewed with skepticism. And 10%, well, there is no other explanation other than some kind of fraud must be at work.

No. No. No.

According to the SEC’s website a Ponzi scheme is “an investment fraud that involves the payment of purported returns to existing investors from funds contributed by new investors.” For p2p lending to be a Ponzi scheme new investors, not borrowers would be providing the returns for existing investors. This would imply that all or most of the loan applications that are on the platform every day are fictitious.

Lending Club and Prosper Have Transparent Audit Trails

[Read more…]

Filed Under: Investing/Lending Tagged With: Lending Club, ponzi scheme, Prosper, sec

Views: 725

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ABOUT LENDIT FINTECH NEWS

LendIt Fintech News, Powered by Lend Academy, has been bringing you all the news and information about fintech and online lending since 2010 when it was founded by Peter Renton. We not only have the industry’s most active news site, but also the largest investor forum and the first and most popular podcast.

We are a team of fintech enthusiasts who have been covering the industry for many years. With a deep knowledge of online lending, digital banking, blockchain, artificial intelligence and more our team covers the daily news and writes in-depth editorials.

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