China has banned microcredit companies from lending on college campuses in an attempt to curb excess lending and prevent more than 30 million students across the continent from falling into debt traps.
“Some microlenders have focused on college campuses and conducted inductive marketing through cooperation with technology companies,” the statement read. “These practices have led university students to excessive consumption on Internet platforms and have caused some students to fall into the traps of loan sharks.”
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The CBIRC statement, published jointly with the People’s Bank of China, the Central Bureau of Cyberspace Affairs, the Ministry of Education and the Ministry of Public Security, said that regulators were determined to eliminate illegal practices that “catch” people. University students.
In China, microcredit companies, also known as small loan companies, can offer loans at a maximum interest rate of up to four times the benchmark rate set by the central bank. They are prohibited from taking deposits and can only use their own capital to grant credit.
At the end of 2020, China had more than 7,100 small lending companies with outstanding credit valued at just under 900 billion yuan ($ 138.4 billion).
“Some students are interested in borrowing for expensive items such as smartphones,” said Yan Jinglan, a professor at the East China University of Science and Technology in Shanghai. “They have no idea about the high interest rates and the risks involved if they cannot repay the loans.”
Many lenders use heavy-handed tactics, including violence, to recover bad loans from college students.
P2P lending has exploded in mainland China since 2012, when Beijing encouraged operators to help cash-hungry small businesses access much-needed loans. But the industry spun out of control when thousands of rigs were found to be illegally operating businesses that put depositors’ money at risk.
As of August 2020, China’s defunct P2P platforms still owed depositors 800 billion yuan after four years of crackdown by regulators.
P2P firms, technically providers of information for matching borrowers and lenders, collected a large amount of money from investors before re-lending it to cash-hungry companies at high loan rates. College students were also among its top target customers.
This article originally appeared on South China Morning Mail (SCMP), the most authoritative voice reporting on China and Asia for over a century. For more SCMP stories, explore the SCMP application or visit the SCMP Facebook Y Twitter pages. Copyright © 2021 South China Morning Post Publishers Ltd. All rights reserved.
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