The Wild West that is Chinese alternative lending may have a new sheriff, as FICO is planning to unveil the FICO Alternate Lending Platform for Chinese P2P’s and micro lenders.
China has long struggled to manage non-traditional lenders. Shadow lenders operating outside official supervision have accelerated the overall national debt level to a point where Beijing is having to develop strategies to prevent extensive damage to the economy.
In a similar manner, peer-to-peer lenders are sprouting up with alarming frequency, with many lasting only a short while. The collective unpredictability displayed by the industry is causing damage to the serious players.
“In China, there is a clear difference between the established lenders that use sound risk management technology, and alternative lenders who are still looking for the right solution to create a sustainable business,” said John Chen, managing director, FICO China. “We have closely observed the developments in this fast moving market over the last year. The result is a solution built on advanced analytics that is easy-to-use, yet powerful in delivering a profitable lending business model.”
More than 1,500 P2P platforms were estimated to be operating in China at the beginning of 2015, a full doubling in a year. The more than $40 billion lent was nearly 2.5 times the total from a year earlier.
Haphazard risk management and the absence of regulatory scrutiny has fostered an even higher level of bankruptcies and stressed companies. At least 275 P2P’s either went out of business or ended the year in extreme difficulty, a pace 3.6 times faster than in 2013, according to Wangdaizhijia’s China Internet Finance Annual Report.
Concrete measures need to be taken because the collective market share taken by P2P’s makes their collapse a serious hazard for the Chinese economy, a FICO consultant said.
“More credit is finding its way into the Chinese economy from outside of the banking system than is actually flowing through the banks and as shadow banking social financing is predicted to grow to an estimated 35% of GDP in 2015, according to an International Monetary Fund report,” said Robert Duque-Ribeiro VP/GM of Fair Isaac Advisors, FICO’s consultancy arm. ” Shadow banking has been a boon for investors looking for a higher return on their deposits, and it creates a large credit base to stimulate the economy; However, with lending migrating out of the banking system, the downside is that the level of risk has increased due to a thin regulatory framework.”
The FICO Alternate Lending Platform provides a risk scoring and decision making platform that can be adjusted to a company’s unique originations process. It is a cloud-based platform and has eliminated installations and updates.