Consider Qifang, for example, a website that provides student loans by connecting borrowers and lenders. Such peer to peer (P2P) lending was pioneered in other markets, notably Britain and America, though its growth has been hampered by higher-than-expected default rates (blamed on the financial crisis) and regulatory uncertainty. Zopa, a British P2P lending site, pulled out of America last year, and Prosper.com, the leading American site, had to suspend its activities while it registered with the Securities and Exchange Commission, but has just relaunched.
Qifang takes this formula and adds a couple of twists. It is focused on student loans, for which there is particular demand in China, where the authorities are keen to encourage people to go to universities and colleges. In China, such loans are usually provided by community group-lending schemes, so Qifang is, in a sense, merely an online version of an existing practice.
As with other P2P lending sites, borrowers are required to provide personal information about themselves to reassure lenders. In Qifangs case, borrowers also provide family details, which increases the social pressure not to default, since that would cause the family to lose face. Money is paid directly to educational establishments, further reducing risk for lenders.
In the six months since its launch Qifang has arranged 2,500 loans worth an average of $400 each, with terms of between one and three years. Qifang offers lenders an interest rate of 5-15%, depending on the perceived trustworthiness of the borrower. There have been no defaults so far, says the companys founder, Calvin Chin. The company also plans to raise money from charitable foundations to lend out, with the interest being reinvested to fund further loans.
There are many other examples of Chinese dotcoms that have added new features to models borrowed from abroad. Chinese social-networking sites, for example, commonly make money by selling applications, games and other add-ons to users and adding virtual currencies and payment systems. In other words, they actually have plausible business modelswhich is more than can be said for some of the Western sites from which they took their inspiration.
The Economist Newspaper Limited 2009