P2P Lending Research Articles

Relationship Between Interest Rate and Risk of P2P Lending in China Based on the Skew-Normal Panel Data Model

This study examines the relationship between interest rate and defunct platform risk of China’s peer-to-peer (P2P) lending platforms. P2P lending provides an alternative funding source for individuals and micro-enterprises and offers a new investment tool for households. But the frequent collapses of many platforms were huge losses to market participants and even led to a decline in China’s P2P lending industry. In this study, weekly data of 76 platforms from December 3, 2017, to October 6, 2019, are employed, and empirical research based on the normal and skew-normal panel data model respectively is conducted. Statistical indicators prove that the skew-normal panel data model is preferable to another one in modeling the data set of interest rates. The empirical results show that China’s P2P market is efficient overall. But the positive correlation between the interest rate and risk is not significant for platforms with excessively high interest rates, whose interest rates are more determined by the types of ownership. The findings and implications are provided in the end.

Internet of Things and Blockchain-Based Smart Contracts: Enabling Continuous Risk Monitoring and Assessment in Peer-to-Peer Lending

ABSTRACT Peer-to-peer (P2P) lending enables individuals and small companies to finance and invest without the intermediation of financial institutions. However, this business model is also associated with high delinquency risk and a lack of risk monitoring and control capabilities. This paper explores the potential of the Internet of Things (IoT), blockchain, smart contract technologies, and the Continuous Risk Monitoring and Assessment (CRMA) framework to re-engineer risk monitoring and control for P2P lending. We conducted a case study of a large Chinese P2P lending company to identify problems in its current risk monitoring and control processes and to design an IoT-smart contract CRMA system to continuously monitor and respond to delinquency risk via real-time data collection, automatic loan settlement, and in-time risk disclosure. Data Availability: Data are available from the public sources cited in the text. JEL Classifications: M40; M41; M49.

Credit Risk Detection in Peer-to-Peer Lending Using CatBoost

P2P lending (Peer-to-peer lending) is widely used by private borrowers, small businesses, and MSMEs because P2P lending allows individuals and businesses to be able to lend money directly from lenders without the stringent requirements and criteria of traditional banks and financial institutions. However, P2P lending has a credit risk problem characterized by a high failure rate for borrowers to repay their loans. Therefore, a system was necessary to detect credit risk to minimize the risk of P2P lending. In this study, a system had been built using the CatBoost method; the dataset used was taken from the Bondora loan dataset. To measure the performance of the CatBoost algorithm, an evaluation matrix was performed using ROC (Receiver Operating Characteristics) curves and AUC (Area Under Curve) was performed. The experiment consists of three scenarios, of which the best result regards Scenario 2 with a data splitting of 90:10. It was caused by the result of AUC value 0.80329 compared to scenario 1 with a data split of 80:20 with the AUC value around 0.789583, and scenario 3 with a data split of 70:30 with the AUC value around 0.781066, respectively.

Consequences of China’s 2018 Online Lending Regulation and the Promise of PolicyTech

Swift and unexpected shifts of financial regulations can have profound implications for the general population. This is evidenced by China’s abrupt transition in its stance on P2P lending in 2018. Initially embracing these platforms, the abrupt regulatory pivot to widespread shutdowns. Our empirical research, drawing upon credit application data, demonstrates how this indiscriminate approach hindered economic development opportunities for a significant portion of borrowers, particularly the underprivileged. As a remedy, we advocate for the implementation of AI-driven regulatory frameworks. Rather than a monolithic approach to all borrowers, AI helps distinguish between real financial risks and those that can be managed. This nuanced strategy safeguards individuals’ economic progression, while efficiently mitigating financial hazards. For policymakers and industry stakeholders, our findings underscore the importance of contemplating the broader ramifications of regulatory decisions and harnessing innovative methodologies, such as AI, to strike an optimal balance.

The Emergence of Islamic Fintech and Its Applications

Islamic Fintech is a disruptive force in the financial sector, promising increased financial inclusion, economic development, and a plethora of efficient, transparent, Shariah-compliant financial solutions due to its integration of technology with Islam's profound ethical principles. This paper examines "Islamic Fintech," a swiftly expanding component of the global financial ecosystem that combines financial technology with Shariah principles derived from the Holy Qur'an and the Sunnah. This burgeoning industry seeks to align finance with Islamic ethical and moral codes, with an emphasis on the prohibition of usury, speculation, and investments in immoral goods. This paper also examines the origins, applications, and regulatory governance of Islamic Fintech. It highlights the breadth of its innovative applications, such as Shariah-compliant digital banking, crowdfunding, and P2P lending platforms, as well as the incorporation of cutting-edge technology such as AI and machine learning for risk assessment and investment strategies, blockchain technology for Islamic cryptocurrencies, and Insurtech for the streamlined distribution of Islamic insurance products. In addition, the paper elaborates on the necessity of regulatory frameworks and standardisation for the growth and sustainability of Islamic Fintech, highlighting the interoperability challenges.

A collective decision-making model of p2p lending platforms compared to bank lending

PurposeThis study aims to develop a theoretical model that uses the decision-making theory in a financial intermediation setting to provide insights into the differences between the outcomes of the decision-making process for a bank and for a peer-to-peer (p2p) lending platform to explain the role of p2p lending versus bank lending in the credit market.Design/methodology/approachThis study develops a novel approach to explaining the differences between p2p lending and bank lending by using the decision-making theory. In particular, it analyzes the likelihood of a risky borrower being able to obtain a loan from a p2p lending platform versus the likelihood of being able to obtain a loan from a bank. The results contribute a theoretical understanding of factors that can determine the role of p2p lending platforms versus that of banks in the credit market, with implications for recovery from an economic crisis.Findingsp2p lending platforms have the potential for contributing to economic recovery when they are subject to less regulations and are able to offer a faster and less costly lending process than do banks and when they are used by a large number of lenders. However, the potential role of p2p lending platforms in recovery might be reduced when banks have access to anticyclical measures that reduce banks’ capital requirements or provide them with low-cost funds.Originality/valueThis study provides a novel approach to explaining the differences between p2p lending and bank lending by using the decision-making theory. The results contribute a theoretical understanding of factors that can determine the role of p2p lending platforms versus that of banks in the credit market.

Status and Regulation of the Fintech Industry

Fintech is the cross product of the financial industry and the technology industry. With the development of society, financial digitization and technology finance have become the development trend. Electronic payment, p2p lending, Robo-Advisor and block chain technology four industries have formed a scale. The current fintech industry has become an important supplement to the economic system. However, due to the short development time, there are still challenges such as high risk points and difficult supervision. Based on the existing industrial scale and business capacity, the continuous integration of fintech industry and society has become a future trend. In the long run, fintech enterprises should give full play to their advantages in technology reserve, optimize and improve products, maintain industry self-discipline and reduce risks. The society and the government also need to keep objective and inclusive, increase talent reserve and industry support, maintain active supervision, promote the establishment of relevant laws and regulations, and maintain a good industry ecology.

Peer-to-Peer Lending as a Determinant of Federal Housing Administration-Insured Mortgages to Meet Sustainable Development Goals

In this paper, we investigate the influential factors of Federal Housing Administration (FHA) mortgage loans, focusing our research interest on peer-to-peer (P2P) lending, the most successful FinTech lending model. We consider P2P lending an alternative source of financing that marginal borrowers use to pay the increased mortgage down payment, making them eligible to receive a mortgage from conventional banks. In other words, we examine whether and to what extent P2P lending has a positive impact on the FHA loans volume by providing the ability to circumvent the loan-to-value (LTV) cap policy. As a result, P2P lending can be seen as a means for ”rationed” borrowers to have access to the market by reducing inequalities and promoting financial inclusion, thus achieving Sustainable Development Goals (SDGs). We employ hand-collected data from FHA mortgages, P2P loans, and other economic factors from all 50 U.S. states during 2007–2017 and use panel data techniques for this purpose. Research shows that P2P lending, GDP per capita, population growth, broad money growth rate, interest rate, unemployment rate, new housing units, and consumer confidence Index produce effects on FHA loans. We show that P2P lending, a nonconventional determinant, is causally associated with a significant increase in the count and volume of FHA loans, implying that P2P lending has a positive impact on them. The ability of P2P to bypass mortgage supply constraints (tightened LTV caps) by providing small loans to borrowers to meet the increased down payment requirements is very important to policy-makers, as it shows that constraining the volume of mortgage loans may be not achieved. Macroprudential tools designed to control credit growth may prove ineffective, as the use of alternative forms of lending helps circumvent them and ultimately leads to excessive household leverage with all the risks that it poses to the financial system.

P2P Lending platforms in Malaysia: the awareness among Malaysian adults.

Background: Since 2016, the Securities Commission (SC) in Malaysia has given licenses to only eleven P2P lending platforms. Such lending platforms are expected to disrupt the lending services of traditional lenders in the coming years. However, being still in their infant stages, it is essential to know the extent to which such platforms are made known to potential investors out there. This study aims to examine the awareness level of the eleven P2P lending platforms among Malaysian adults. The study also explores if past investment experience and financial knowledge would influence such awareness from Malaysian adults. Methods:A sample of 335 Malaysian individuals was used for this study. An online questionnaire was designed with three main parts: demographic, financial literacy, and P2P lending awareness. Using IBM SPSS Statistics 26, frequency, descriptive, normality, Pearson coefficients and multiple regression analyses were carried out. Results: Although seven out of ten respondents have good knowledge in three areas of finance: compounding rate, inflation and diversification, only 14.33% had a good and excellent awareness level of P2P lending. Thus, one would expect lesser awareness about P2P lending among Malaysian adults whose financial literacy is poor or zero. Test results from multiple regression analysis suggest that past lending experiences positively affect the awareness of P2P lending in Malaysia, but not the financial literacy. Conclusions: The awareness about P2P lending among Malaysian adults is too low, despite their high level of education and financial literacy. No investing experience and not knowing any existing P2P lending in the country may be the reason for this low awareness. Therefore, for P2P lending to thrive in Malaysia, the eleven P2P lending platforms need to be promoted aggressively in various social media outlets.

Factors determining default in P2P lending

PurposeThe research documented in this paper aims to examine multiple factors related to borrowers' default in peer-to-peer (P2P) lending in the USA. This study is motivated by the hypothesis that both P2P loan characteristics and macroeconomic variables have influence on loan performance. The authors define a set of loan characteristics, borrower characteristics and macroeconomic variables that are significant in determining the probability of default and should be taken into consideration when assessing credit risk.Design/methodology/approachThe research question in this study is to find the significant explanatory variables that are essential in determining the probability of default for LendingClub loans. The empirical study is based on a total number of 1,863,491 loan records issued through LendingClub from 2007 to 2020Q3 and a logistic regression model is developed to predict loan defaults.FindingsThe results, in line with prior research, show that a number of borrower and contractual loan characteristics predict loan defaults. The innovation of this study is the introduction of specific macroeconomic indicators. The study indicates that macroeconomic variables assessed alongside loan data can significantly improve the forecasting performance of default model. The general finding demonstrates that higher percentage change in House Price Index, Consumer Sentiment Index and S&P500 Index is associated with a lower probability of delinquency. The empirical results also exhibit significant positive effect of unemployment rate and GDP growth rate on P2P loan default rates.Practical implicationsThe results have important implications for investors for whom it is of great importance to know the determinants of borrowers' creditworthiness and loan performance when estimating the investment in a certain P2P loan. In addition, the forecasting performance of the model could be applied by authorities in order to deal with the credit risk in P2P lending and to prevent the effects of increasing defaults on the economy.Originality/valueThis paper fulfills an identified need to shed light on the association between specific macroeconomic indicators and the default risk from P2P lending within an economy, while the majority of the existing literature investigate loan and borrower information to evaluate credit risk of P2P loans and predict the likelihood of default.

On The Application of Scoring Models in P2P Lending

The article discusses the features of using scoring models in peer-to-peer lending. P2P aggregators act as an alternative to traditional bank lending. However, as in traditional bank loan financing, there is a problem of the borrower’s solvency assessing both in the short and long term. The main purpose of this process is to minimise credit risk and reduce the share of “bad" loans.

Advertisement Business Financial Strategy During The COVID-19 Pandemic: A Case Study of Satria Advertisement Company

The COVID-19 pandemic has had a major impact on the business world, including Karya Satria Advertisement companies engaged in out-of-home Advertisement. The company experienced difficulties in obtaining Financial due to strict banking policies during the pandemic and new regulations from the government during the pandemic, which also impacted the company's operations. Based on this, the purpose of this study is to explore Financial strategies that can be applied by Karya Satria Advertisement during the COVID-19 Pandemic. The approach used is qualitative and exploratory. The research data was obtained by interviewing three resource persons, consisting of the Finance Manager, Head of Magelang Branch, Head of Solo Branch. Furthermore, the data obtained were analyzed using three stages of analysis: data condensation, data presentation, and conclusions. The results showed that Karya Satria Advertisement felt the negative impact of the COVID-19 Pandemic, especially at the beginning of its spread. However, based on the company's good adaptive power and support from loyal customers, as well as strong commitment from all internal parts of the company, Karya Satria Advertisement can overcome these negative impacts. Karya Satria Advertisement has a positive response to these regulations, namely by trying their best to comply with and implement various new government regulations. The Financial strategy that can be applied by Karya Satria Advertisement is to look for alternative sources of Financial, ranging from venture capital, P2P lending, government programs, strategic partnerships, or alternative financial instruments.

Digital Financial Literacy: Peer-To-Peer (P2P) Lending of Microenterprise in Cibuntu Village

The society began to look for information about Fintech Peer-To-Peer (P2P) Lending or online loans that became known to the public after news emerged of the rampant illegal online loan entanglements. Online loans are attached to a negative stigma, on the other hand online loan platforms are needed by the community. In line with the government's goals, the purpose of Community Service (PKM) activities is to increase understanding, insight, digital financial knowledge regarding Fintech P2P Lending for MSME groups in the Cibuntu Bekasi, South Tangerang West Java Indonesia. The material provided includes the development of Fintech P2P Lending in Indonesia. Second, explaining the benefits and risks and how to choose an online loan platform that is registered and licensed at the Financial Services Authority (OJK). Third, provide an explanation of the consequences and legal protection for ordinary people so they don't worry when facing legal problems with illegal online loan companies. Fourth, the existence of the Investment Alert Task Force which was formed by the government in the context of preventing and handling allegations of unlawful acts by illegal online loan companies. The hope of this activity is that the community and MSME actors can choose legal online loan platforms and avoid illegal online loan entanglements.

Drivers and Barriers to Use Fintech P2P Lending among MSMEs in Metro City, Lampung

This study aims to analyse the driver and barrier factors of MSMEs intention to apply for loan at Fintech P2P Lending in Metro City, Lampung. The driver factors consisting of economic benefit, seamless transaction, and convenience as well as the barrier factors consisting of legal risk, security risk, service products, reputation, and inertia are associated with MSME intentions to apply for loan at Fintech P2P Lending using data analysis techniques in the form of Ordinary Least Square. The results of the study show that the driver factors consisting of economic benefit dan seamless transaction variables have positive and significant effect on the intention of MSMEs to apply for loan at Fintech P2P Lending. Meanwhile, the convenience variable has positive but not significant effect on the MSMEs intention to apply for loan at Fintech P2P Lending. In addition, the barrier factors which consist of the variables of security risk, service products, and reputation have positive and significant effect on the intention of MSMEs to apply for loan at Fintech P2P Lending. Meanwhile, legal risk and inertia variables have negative but significant and not significant effect respectively on the MSMEs intention to apply for loan at Fintech P2P Lending. The results of this study are useful for the Fintech P2P lending industry as an evaluation material regarding the driving and inhibiting factors to apply for loan at Fintech P2P lending as a basis for determining Fintech P2P lending business strategies.

JURIDICAL ANALYSIS OF FINTECH LENDING AGREEMENT BASED ON CIVIL LAW PERSPECTIVE IN INDONESIA

The growth of fintech P2P lending is getting faster and easier to access for people who still struggle to get loans and for MSME entrepreneurs who need capital to develop their business. Investing in P2P lending offers the prospect of high returns annually, however, the investment must be in accordance with personal profile and risk appetite and how to manage it. Therefore, the objectives of this research is to find out the legal Tunaiku credit agreement based on the civil law perspective in Indonesia; legal consequences if one of the parties defaults on the credit agreement in this application; and find out the form of legal protection for other parties who are aggrieved in the application credit agreement. Analysis of legal materials using qualitative descriptive analysis with the type of normative legal research. In addition, the research approach used is a statutory approach, conceptual approach, and case study approach. Data sources were obtained from primary, secondary, and tertiary legal materials. The results of this research are (1) digital financial services activities are implemented in cooperation with third parties in the context of inclusive finance; (2) if there is a defaulted person, it is obliged to reimburse costs, losses, and interest due to non-fulfillment of an agreement in accordance with Article 1243 of the Civil Code; and (3) in order to obtain legal protection, the public is encouraged to choose a fintech lending company that has been registered with the Financial Services Authority.

Model Retraining: Predicting the Likelihood of Financial Inclusion in Kiva’s Peer-to-Peer Lending to Promote Social Impact

The purpose of this study is to show how machine learning can be leveraged as a tool to govern social impact and drive fair and equitable investments. Many organizations today are establishing financial inclusion goals to promote social impact and have been increasing their investments in this space. Financial inclusion is the opportunity for individuals and businesses to have access to affordable financial products including loans, credit, and insurance that they may otherwise not have access to with traditional financial institutions. Peer-to-peer (P2P) lending serves as a platform that can support and foster financial inclusion and influence social impact and is becoming more popular today as a resource to underserved communities. Loans issued through P2P lending can fund projects and initiatives focused on climate change, workforce diversity, women’s rights, equity, labor practices, natural resource management, accounting standards, carbon emissions, and several other areas. With this in mind, AI can be a powerful governance tool to help manage risks and promote opportunities for an organization’s financial inclusion goals. In this paper, we explore how AI, specifically machine learning, can help manage the P2P platform Kiva’s investment risks and deliver impact, emphasizing the importance of prediction model retraining to account for regulatory and other changes across the P2P landscape to drive better decision-making. As part of this research, we also explore how changes in important model variables affect aggregate model predictions.

The Effect of Using Financial Information Service System (SLIK) on Bad Credit Rate in Fintech Peer to Peer Lending

The development of Fintech Peer to Peer Lending (P2P Lending) in Indonesia is very rapid in supporting increased financial inclusion. Along with the increase in the value of loans disbursed through P2P Lending, the ratio of bad loans or what is often referred to as Non Performing Loans (NPL) also continues to increase. Literature review article "Can the Use of a Financial Information Service System (SLIK) Affect the Level of Bad Credit in Fintech Peer to Peer Lending?" is a scientific article that aims to build a research hypothesis on how one variable influences other variables. The method used in writing this literature review article uses the library research method. The sources used as material for research are through available data from the website of the Otoritas Jasa Keuangan (OJK) & Asosiasi Fintech Pendanaan Bersama Indonesia (AFPI), academic online media, Google Scholar, Mendeley, and other online media. The results of this study provide information that can be used in efforts to minimize the occurrence of an increase in credit risk (NPL) in the P2P Lending industry, namely by taking preventive steps by making an effective creditworthiness assessment to prospective loan recipients through analysis of credit information data obtained from Sistem Layanan Informasi Keuangan (SLIK). Therefore, as an effort to restrain the rate of increase in the number of bad loans in the P2P Lending industry, a tool is needed to carry out an effective credit scoring (credit scoring) by integrating P2P Lending credit loan data into SLIK so that more credit data of prospective loan recipients can be obtained. comprehensive. More comprehensive data can provide more accurate results on credit scoring, and have a positive impact on loan repayment rates.

EFFECT INFLUENCER, P2P REPUTATION AND RISK PERCEPTION TOWARDS INVESTMENT DECISIONS OF MILLENIAL IN P2P LENDING: FINANCIAL LITERACY AS A MEDIATION VARIABLE

P2P lending is a fintech innovation that makes it easier to apply for credit than banks. Many investors were tricked and faced other losses for their investment decisions in P2P lending. Therefore, this study examines the impact of Influencer, P2P reputation, and Risk Perception on Investment decisions of Millennials in P2P Lending with Financial Literacy as a mediation variable. The research conducted is focused on millennial investors. With the purposive sampling technique, there are 50 research samples obtained. The research sample is compiled by distributing the questionnaire online through Google Form. The data analysis used SmartPLS 3.0 software, divided into descriptive analysis, path analysis, and partial test (T-test). Results show that influencer significantly affects investment decision and is non-significant to financial literacy. Meanwhile, P2P reputation and risk perception are significant for financial literacy yet insignificant for investment decision. Financial literacy is not significant to investment decision and unable to mediate influencer, P2P reputation, and risk perception to investment decision. Keywords: P2P lending, Influencer, Millennial, P2P Platform, Risk Perception, Financial Literacy.

Throwing Good Money After Bad: Risk Mitigation Strategies in the P2P Lending Platforms

The success of peer-to-peer (P2P) lending platforms has proven inconsistent and uneven over time and geography. This paper aims to strengthen our understanding of the market evolution through an analysis of risks on P2P lending platforms, which can be significantly affected by the way the platform design, regulatory structural building, nature of the transaction, and interdependencies between organizational components. We extend the social-technical model and create a systematic framework to map and analyze the financial risks from a hybrid financial and organizational approach. By implementing textual and statistical analysis on a dataset from Renrendai platform, we found that risks are generated not only from the stakeholders but also due to the weaknesses of interdependencies between organizational components and platform design. We also utilize our models to investigate why some P2P platforms such as LendingClub and Upstart (US), Renrendai (China), and Zopa (UK) have succeeded or failed from both finance and IS perspectives, and further propose potential risk-mitigation strategies for P2P lending platforms.

Exploring Investor Behavior and Decision Making in Alternative Investments

This paper presents a research study focusing on investor behaviour patterns and decision-making processes when selecting investment products and exploring alternative options, P2P lending and gold saving. The study also explores the potential attractiveness of banking as an investment option if banks can offer alternative products that are currently not available within the banking sector through collaborative banking with FinTech companies. By understanding investors’ perspectives and addressing their pain points, companies can propose solutions and develop effective marketing approaches that cater to their needs. The research methodology employed a qualitative approach, involving in-depth interviews with ten respondents selected through purposive sampling. Data analysis was conducted using NVivo software. In conclusion, alternative investment products generate enthusiasm among investors as they offer convenience in managing their portfolios in one banking platform. Banking is perceived as the safest place to put the money compared to other investment platform. However, for banks to successfully cater to customer needs, it is crucial for banks to provide a user-friendly interface, performance review that allows for daily monitoring of investments, clear product info and tutorials, as well as protection for high-risk products like P2P lending.