Peer-to-peer lending is coming to China. This morning I interviewed a Chinese-American entrepreneur living in Shanghai named Calvin Chin working on a stealth P2P lending site for Chinese student loans called Qifang. (The name, which translates to “bloom,” comes from the Chairman Mao quote, “Bai Hua Qi Fang”—”Let a hundred flowers bloom.”) Consumer lending is just getting off the ground in China. Most college education is financed by group borrowing associations rather than bank loans. Chin wants to bring that group lending dynamic online with Qifang. In fact, P2P lending might have a greater impact in China and other developing countries than the U.S. because of the absence of other consumer banking alternatives.
Chin was born in Michigan, went to Yale, and worked in banking and a few tech startups before moving to China. He founded Qifang in August, 2007. He is aiming to a launch the site in China in the spring. So far it is a real bootstrap operation. He has raised $200,000 in angel money from investors in Hong Kong and other parts of Asia, and is in the process of raising a series A financing. Qifang was inspired by existing P2P lending startups like Prosper and Zopa, but Chin is developing it with a Chinese twist. He says:
We feel strongly about China’s Internet being pretty embarrassingly all about copies. And while we were inspired by other models, we feel like we need to challenge ourselves to be different and better and fit the market. We think of it as innovation leveraging—take a good idea and make it work for China by making it different.
Simply porting over Prosper’s business model won’t work, given the lack of credit history, the lack of a large student loan market, the still-young Internet culture, and the severe regulatory environment. As with Prosper, individuals with money to invest can come on the site and register as lenders. They can browse through the profiles of the different borrowers to decide who to loan their money out to. Unlike Prosper, Qifang is starting out only with student loans.
And it is not the fist P2P lending site in China. A broader one called PPDai offers P2P loans across many categories (see this write-up in English). But Chin thinks that starting with student loans is the better strategy in China because of the need to stay in the good graces of the government. Anything that helps promote education is popular with government bureaucrats.
It is also a big market. Chin estimates there are 25 million students in China, who pay an average tuition of $700 a year. That is $17.5 billion in potential loans.
Chin expects the interest rate on most loans on Qifang to be between 8 to 12 percent, a decent return. The interest rate will be based on how many lenders bid on each loan. The site will recommend that lenders invest in a portfolio of loans to reduce their risk, but if they choose, each one can put all their money in a single loan. Since there is very little credit history on individuals in China, the site will use other proxies to calculate risk. Each borrower must scan in their national ID cards to verify who they are, and list their school, major, grades, hometown, parents ID cards and income. Chin is creating partnerships with the schools directly, so that the information students supply can be verified and so that loan payments can be made directly to educational institutions. “We don’t want students running off to Macao,” he jokes.
There will also be an interesting social calculus that takes place on the site. Since each borrower’s parents will be named on the loan, failure to pay it back would result in a shameful losing of face for the parents. “Social pressure is very powerful here,” notes Chin. Default and delinquency rates will also be visible by hometowns, school, and even major. Banks don’t benefit from that sort of social pressure. Whether it will have any effect on default rates will be worth watching.
As growing economies like China develop their banking infrastructure, P2P lending has a shot of growing up with it rather than fighting against an already-entrenched way of doing things. In that sense, P2P lending might have a better shot in China than it does here.
ahem …I’m 1# !
I don’t think it will work.
Interesting
It’s worth noting that lenders are leaving Prosper in droves due to the horrible ROI from widespread fraud, and the fact that Prosper’s customer service sucks. I think Prosper views the borrowers as the prize and has pretty much shit all over the lenders.
Perfect good.
有了这个给学生贷款的网站，相信中国的学生能够享受到更好的教育了，关注中。
已经留下email，期待……
I know guys who haven’t rec’d a dime back from Prosper.
Interesting, it looks the site is still in early stage, even the solgon is copied from ppdai directly.
It should be more like to lendingclub.com instead of prosper.com.
ppdai will launch some specific areas, students loan is one of the areas and I believe it will be a great news for students in China.
The irony here is profound: an American-born and Yale-educated Chinese went back to the motherland and started a company named after a quote from Mao — a mass murderer who hated capitalism and the U. S.
If a Russian were to name his company after a quote from Stalin, or a German were to pick the name of his company from Hitler’s quotes, well, you get the picture…
One advice for Calvin Chin: “Wake up and smell the flowers that bloom from the corpses of the millions Mao has killed.”
totally ignorant comment. you speak in superficial labels, and twist historical facts. Stalin deliberately murdered millions of people to maintain his hold on power, and cared little for people in society. Mao made mistakes, but he had a genuine desire to increase wealth and prosperity for all, and end injustices between people.
since China do not have a comfortable credit system, it doesn’t make any sense.
It’s really nice to get to know a startup qifang.cn from China here from TC. Looking forward to more news about startup and investing activities in China. Thanks, Eric.
Absolutely student loan is highly demanded in the China education market since the involvement from China government is very weak in this area when compared with any developed countries. So if qifang.cn succeeds, that would help more young Chinese people to get higher education which is good for every one both in short term and long term.
However, I’m quite curious how qifang.cn will work out in China, given that no national credit system has been built in China so far. The losing face thing mentioned by Calvin Chin is just an emotional incentive for a student to pay the loan, which makes no business or legal sense. As far as I know, for some people who are in a disadvantaged status, they would prefer to lose face if they can try all their best efforts to avoid a loan as little as $1k. This is really bad but it is reality.
With that being said, I don’t think qifang.cn could be a quick win from an ROI perspective. As a common sense, investing in education is a long term thing so you can not get the return so quickly. Since I’m learning to become an angel investor, I’m quite curious when those angel investors of qifang.cn are expecting to exit this venture.
Anyway, good luck to Calvin Chin and all Chinese students who are financially stressful to finish their college education.
Wei Xiao Bao
http://cangelor.com
The China Angel Investor
Very interesting concept; however, you failed to mention that this is currently under development in the United States.
See the Academic Capital Exchange:
http://www.academicapital.com
Looks like they are on to something here…
re Wei Xiao Bao
Hey, dude. Are you practice your English? I be you’re preparing GRE test. It’s funny
Buctrade – Fynanz is another one that is under development in the US.
See an interview with Fynanz CEO.
+17.5 B for qifang.
Michael,
actually this is not the first p2p lending startup. There is at least one that launched before (last summer)
http://www.wise...ountries/china/
Oops, sorry on second reading you mentioned that in the article
I wonder if someone can scam this people trusting people they dont even know.
New or not so new idea/innovation Qifang?
There are other players in China for p2p loans and globally for student loans therefore it is surprising that qifang is selected as the Tech pioneer at WEF which requires it not to be a repackaging of an already well-accepted technological solution.
US – greennote and Fynanz (Student loans)
In China
51give.com (Microfinance and Student loans)
ppdai.com (general lending)
wokai.org (Microfinance donations)