Dianrong

History

In 2012, the co-founder of Lending Club and its former Chief Technology Officer, Mr. Soul Htite came from the United States to China and brought Lending Club’s advanced technological know-how and innovative concepts with him. He hit it off with senior finance lawyer Kevin Guo, and together they created Dianrong.com.

Soul Htite and Kevin Guo have both come to the realization that internet finance can not only give more ordinary people an alternative to manage their money, but will also be able to benefit numerous small and micro enterprises. On the one hand, many small and micro enterprises in China have always faced significant challenges to obtain loans; on the other hand, investors with disposable funds often have had no reliable ways to invest their money. The emergence of internet finance has connected borrowers with lenders to their mutual advantage, ushering in a new era that will transform China’s existing financial landscape.

By introducing the state-of-the-art technologies and operational expertise of Lending Club to China, Dianrong.com is at the forefront of the homegrown internet finance industry going through rapid development to meet the borrowing needs of the local markets.

Overview

Dianrong specializes in small consumer and business loans, ranging in size from 2,500 to 500,000 RMB for personal loans and 50,000 to 2,000,000 RMB for small business loans. Interest rates, loan tenure and fees are based on credit history, income, debt to income ratio, and loan purpose. Tenure varies from 1 month to 24 months, although some 36 month loans have been issued.

Origination fees at Dianrong vary from 1% to 5%. Personal loans generally have higher origination fees. Interest rates vary from 9.49% to 23.99%.

Similar to Lending Club and other peer-to-peer lending platforms, the investors choose which loans they would like to fund based on general information about the borrower, including their age, industry, current city of residence, sex, marital status and tenure in their current job. Lenders can also specify criteria for Dianrong to automatically invest money for them. Investment can be made in increments of 100 RMB (about $16).

As of April 2014, Dianrong has originated about 780 loans, totaling approximately 108 million RMB. Lenders earn money from the interest that borrowers pay, and Dianrong takes 10% of the returns. For instance, if a lender buys a 100 RMB, 12 month note at 17.99% with standard amortization, the first month he will receive a payment of ¥9.17, ¥7.67 in principle and ¥1.50 in interest. 10 percent of the return, or ¥0.15, will be deducted as a service fee.

Regulation & Risk

Pooling and allocating investor funds is unlawful in the PRC. Consequently, online lending platforms must function strictly as intermediaries between those buying notes and those borrowing money, but it is suspected violations of these rules are widespread. After a volatile year with dozens of bankruptcies in the last quarter of 2013, analysts and economists expect the Chinese Central Bank to pass regulation sometime in 2014.

Default rates vary by company. In 2013, Dianrong.com's default rate was about 1%. Default rates at Lending Club in the US have remained stable at about 3%, while at ZOPA, a UK company, defaults are less than 1%. Lending rates in the US are already starting to go down as many investors realize the risk of unsecured consumer debt is lower than they originally perceived.

Performance Statistics

The average return after defaults on all loans, originated via the Dianrong platform in 2013, was 15.7%, most returns fall between 14% and 17%. This is significantly higher than the rates Chinese investors can receive on Chinese banking products or Yu’ebao, an investment product provided by Alibaba Group. The Chinese government stipulates interest rates for Chinese bank accounts. By providing alternative investments, these P2P companies provide a domestic alternative the PBOC has tacitly accepted and is expected to rule on in the near future.

Dianrong.com and the Chinese P2P Industry

The peer-to-peer lending industry in China is very small compared to traditional lending, but is growing rapidly. The market was estimated at $30 million dollars in 2009 and is projected to grow to $7.8 billion by 2015.

Industry churn was severe in 2013. More than 70 companies folded or went bankrupt during the year; 58 in the fourth quarter alone. Even with this thinning of the ranks, there are still approximately 1,000 peer-to-peer companies in the Chinese market, "80 [to] 90 percent" of which "might go bust".

Dianrong is a member of the Shanghai Information Services Association.