The difference between Pratt & Whitney finance and P2P net loans

Author: Guo Jie group

Often, P2P lending platform takes Pratt & Whitney finance as the basis for the establishment of P2P lending platform. They proposed that there are more than 46 million small and micro enterprises in China, most of which are unable to obtain loan services from state-owned banks. The existence of P2P network loans is an innovation in popularizing finance to the world.

In fact, the concept of inclusive finance originated in the 1970s and developed at the beginning of this century. In 2003, Annan, the former UN Secretary-General, pointed out that the world's most poor people lack sustainable financial services and we must establish an inclusive financial system to help them improve their living standards. Pratt & Whitney finance is to provide affordable financial services for low-income and disadvantaged groups in society. The core idea is that all people should have unbiased access to a full range of financial services, including credit, insurance, storage and payment.

In 2008, with the funding of Bill Gates, the Universal Organization for All-Inclusive Financing was established. To date, 105 groups have joined the coalition. However, this non-profit organization has not yet adopted the model of peer-to-peer lending platform, and its target of assistance is even different from that of domestic P2P customers. Lend-ingClub, one of the originators of P2P lending platform, made it clear on its website that the platform for profit-making P2P lending is different from that for inclusive finance.

For the past ten years, inclusive finance has been given the utmost importance in Africa and India. According to the 2012 World Bank report, out of 44 countries in Central and Southern Africa, only 24% of adults have bank accounts, while only 35% of adults in India have bank accounts. In fact, in order to increase national access to credit, in 1969, India had nationalized its banks, but the vast majority of its citizens still could not get access to basic financial services from banks due to high transaction costs, lack of collateral, Multiple files and more. In 2005, the Central Bank of India set the rules and regulations and promoted the inclusive financial behavior.

An important implementation of inclusive finance is microfinance. One of the fundamental differences from commercial banks is that microfinance is based on credit, has no assets to be mortgaged, does not require collateral, does not require a lawyer, and serves the broad masses of the poor. Muh am m adY unus (Yunus), an advocate for microfinance, won the 2005 Nobel Peace Prize. It is conceivable that just because Pratt & Whitney financial assistance targets the poor who are not only poorly educated but also unable to access the Internet, most of the inclusive financial activities are carried out by means of manpower visits instead of the Internet. However, P2P network loan is based on the Internet. At present, the average amount of microfinance lending in the world is about 1026 U.S. dollars, which is far lower than the lending quota on China's P2P network loan platform.

There are currently around 7,000 so-called microfinance institutions around the world. However, the original non-profit Pratt & Whitney microfinance ideas encountered great challenges in the real development. According to Kadir Yildirim, Ph.D., of Ohio State University, the main reason for the large-scale development of microfinance institutions is high interest rates ranging from 20% to 100%, with some commercial models that are essentially profitable through high interest rates in the name of Pratt & Whitney Sheng. According to Yildirim in an article entitled "The World's Financial Impunity: Blessing or Disaster", the poor have higher rates of default because of high rates of interest, while the increasingly commercialized microfinance institutions emphasize that the loans through usury And get the profits. But we also see true inclusive finance. For example, the rural banks led by Mr. Yunus have made outstanding contributions to solving the poverty situation.

The vast majority of P2P P2P lending platforms in China do not absorb the true essence of non-profit universal finance, but only the profit-making interest of high-interest loans for commercial purposes. According to the "2014 China Internet Finance Industry Deep Research Report", 98% of the 355 P2P platforms give investors an annualized interest rate of over 12% and an annualized interest rate of 61% over 24%. If P2P Platform to the borrower for a variety of fees, you can see that the vast majority of borrowers to P2P platform to pay the annual interest rate to be higher or close to 30% .According to April 4, 2001 "People's Bank of China General Office on Loan interest rates higher than the financial institutions allowed by law over the same period, the same grade loan interest rates (non-floating) 3 times for the high-interest borrowing behavior. Then the domestic P2P network loan platform loans issued whether the usury suspect is debatable.

Even if we ignore the above behavior and regardless of P2P lending platform is not as the platform can really help 46 million small and micro enterprises? The answer is basically impossible. Why small and micro businesses can not successfully obtain loans from commercial banks? The survey found that 19% were due to lack of collateral in small and micro enterprises, 17% lack of guarantee, 27% high cost and 34% due to formalities. And we know that most of the domestic P2P lending platforms are mortgages, so if small and micro enterprises that can not obtain loans from commercial banks because of lack of collateral or guarantee will never get loans from P2P lending platform, if these small Micro-enterprises believe that the high cost of bank loans but do not want to borrow from the bank, then they are less likely to accept the high interest rates p2p platform. And a strictly risk-controlled P2P platform can not relax due diligence on the enterprise, this process can not be arbitrary. In view of this, the so-called Pratt & Whitney financial services can not be Pratt & Whitney to 46 million businesses. So who will loan to P2P platform? Which small and micro enterprises can create profits higher than "usury"? The result is obvious.

Personally, I have always believed that the platform for P2P online loan has its own benefits of promoting financial development. It does not need to be understood and supported by using inclusive finance to mislead the public. However, P2P lending platform must abide by the current laws and regulations. We can say that the current law is not standardized on emerging things and needs to be revised. However, all the financial activities must abide by the current laws and regulations under the current laws. This is what we learned from the Securities and Exchange Commission regulatory P2P lending platform Lending Club and Prosper. If we can not regulate it during the initial period of disorderly financial activity, then the effects of its free development are not only more chaotic and systemic risks, but also disrespectful of the existing legal system.

Guo Jiequn (Managing Director of Shanghai Alliance Financial and ZA IS Managing Director and General Manager, Asia Pacific Region, former US hedge fund)