Innovation, Institutions, and Social Change in Peer-to-Peer Lending: Evidence from China

Abstract

In this chapter, we focus on the development of the peer-to-peer (“P2P”) lending industry in China. As a modern borrowing platform, peer-to-peer lending allows clients to obtain funding from peer lenders for a multitude of loan purposes, including credit consolidation, personal purchases, and the development of business ventures. However, the speed at which this industry has grown has created numerous problems for regulatory agencies, particularly in China, the largest peer-to-peer lending market in the world. Our chapter examines how lenders in the Chinese context continue to function as formal institutions regulating this sector continue to grow following a series of highly-publicized illegal lending activities in recent years. Additionally, we determine whether implemented regulatory measures are providing an overall benefit or detriment to the Chinese P2P lending industry. Finally, we highlight the potential for positive social change and social entrepreneurship arising from P2P lending, particularly in terms of the empowerment of traditionally disadvantaged groups by providing access to capital. We use the peer-to-peer lending industry in the United States, currently the second-largest in the world and one operating in a highly-regulated financial industry, as a comparison for the Chinese case.