(Yicai Global) April 21 -- "Cash credit" was mentioned for the first time in a policy document released by the China Banking Regulatory Commission, which has explicitly requested a review of such businesses and refinements to relevant regulation.
China has no standard definition of cash credit. It generally refers to loans which do not involve collateral or a designated purpose, but can be flexibly borrowed and repaid through quick transfers between accounts. Wdzj.com estimates the market value of China's cash credit industry to be between CNY600 billion (USD87 billion) and CNY1 trillion.
The Evolution Of Cash Credit
Cash credit originates from payday loans, which are targeted at the working class, said Tian Weiying, chief executive of p2peye.com. In China, the first two cash credit platforms were sjd.mobanker.com, which mainly provides short-term cash loans to blue-collar workers, and cashbus.com. Since the second half of 2015, the sector has surged in China, with some institutions pitching campus loans. Data shows there were almost 1,000 cash credit platforms in China last year.
"A majority of products claim to offer quick approval and fast transfers. They don't need collateral or a clear purpose," Tian said. "Some loan fraud firms have also started to get involved in cash credit."
By analyzing samples of the top 100 most downloaded cash credit apps, Wdzj.com found the platforms break down into five categories: banks, consumer finance companies, small credit firms, peer-to-peer lenders and vertical loan paltforms. The 100 platforms are centrally distributed with 34 in Shanghai, 22 in Beijing and 17 in Guangdong.
More than 30 peer-to-peer platforms are involved in cash credit, data shows, including Ppdai.com, Yirendai.com, China Rapid Finance and Dianrong.com. Their cash credit operations account for about 1.3 percent of normal operations and saw impressive 12-fold growth over the past year.
A Step Away From Usury
Guangzhou Internet Finance Association will carry out an inspection campaign soon, to look into the risks of the industry, said Fang Song, chairman of the association. "Based on preliminary assessments, a few platforms in Guangzhou have been involved in cash credit, but there have been no forced collections or otherwise vicious incidents."
Low application thresholds are one of the reasons cash credit is so high-risk, with overdue rates reaching past 30 percent. In order to make a profit, the platforms can only cover losses of non-performing loans by charging high, even extortionate interest rates. The large number of overdue loans could also result in forced collection.
The regulation stresses that peer-to-peer lending institutions should not charge extortionate rates or carry out repossessions, said Kang Desheng, vice president of PPmoney. He suggests the regulator lay down more detailed guidelines for different products.
"Cash credit products, like payday loans, cater to many people's urgent needs in the short term, but the terms are much shorter. Low interest rates would not allow companies to cover the cost of customer acquisition, risk control and operations. I think we should distinguish between the intermediary fees and interest for such products," he added.