P2P lending continues to gather steam in China. This occurs even as the sector has been named as a contributor in causing the country’s stock market to rally to bubble levels as traders have turned to lending platforms for capital to buy equities. Nonetheless, with an expanding economy, P2P platforms are an opportunity for both local and foreign investors to profit from China’s potential growth.
The latest example is news of a trio of funding deals last week. The investments were for $35 million and greater, showing the rising valuations of the P2P lending sector in China. pping last week’s deals was Yooli, which raised $46 million in Series C deal led by Hillhouse Capital. A provider of asset management and investment products, Yooli has shifted its focus to include P2P lending as a higher yielding alternative for its investors. According to the firm, around $2 billion (CNY12.4B) has been invested on their P2P lending platform.
In addition to Yooli, also raising funds was FirstP2P which was reported to have received $41 million in a Series B investment round. The round was led by CITIC Capital Holdings and ChinaEquity Capital. Also reported to have closed a $35 million in a Series C round was China Rapid Finance. According to a DoNews report, the round was led by Broadline Capital, and included participation from UBS.
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While cash is flowing into the sector, P2P lending in China has experienced its share of problems. According to a Morgan Stanley report, 270 P2P lenders closed down in 2014. Inability to collect loans and fraud is viewed as the leading problems facing lenders. Nonetheless, due to demand from investors, who often are unable to source loans from banks, the sector continues to grow, becoming a tens of billions dollar market.
Due to the problems many lenders face, it may be actually be leading to higher valuations for the largest firms. With their massive borrower base, the larger firms have better access of customer information to base loan risk on. With a clear understanding of risk, these firms could be well placed to continue to be the recipients of rising valuations such as those from deals last week.