With the rise of P2P lending platforms in China, investing in microloans has become an emerging way for investors to seek higher returns. However, there are also risks like platform risk that need to be addressed. This article analyzes the opportunities and risks of investing in microloans, and introduces major developments regarding regulations, investor protection, and industry trends.
high returns from microloans but platform risk exists
The average return of investing in microloans is generally much higher than traditional bank deposits. However, there is significant platform risk, as over 60% of P2P lending platforms in China have become problematic. Platform risk is the major risk faced by microloan investors, so choosing reliable platforms is critical.
interest rates signal platform risk differently across rate levels
The research shows interest rates are positively correlated with platform risk in general. However, the correlation differs across interest rate levels. When rates are relatively low compared to industry average, higher rates predict lower risk. When rates are medium-level, there is no significant correlation. When rates are relatively high, higher rates predict higher risk.
regulations introduced to standardize microloan industry
Chinese regulators have introduced a series of policies and regulations including the Interim Measures for Internet Micro Loan Business to standardize the P2P lending industry. This aims to curb risks, enhance investor protection and facilitate the healthy development of the microloan industry.
investor education and platform screening vital
As an emerging industry, investing in microloans requires knowledge and vigilance from investors. Investor education on platform risk evaluation is important. Professional data agencies providing platform risk ratings can also aid investors in screening P2P lending platforms.
While investing in microloans provides high returns, platform risk is significant. Regulations, investor education and choosing reliable P2P lending platforms based on professional risk ratings can help investors capture returns while managing risks.