Advances in Crowdfunding: Research and Practice

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Shadow Banking System in China after the Global Financial Crisis: Why Shadow Banks Can Distort the Capital Market Order

This article first examines the composition of the shadow banking system in China and then critically analyses its interconnectivity with the traditional banking system and global capital markets. It argues that whilst shadow bank lending in China contributes to the country’s economic growth, the normal functionality of capital markets could be impaired if shadow banks continue to operate on a high-risk/high-yield business model which could potentially pose a systemic risk. It also addresses the concerns arising from high-leverage shadow bank lending practice and cautions against shadow banks operating in a black hole area that enables them to escape from regulatory purview. The article suggests that future regulatory (law) reform should guide shadow banks towards consumer protection by establishing an effective internal control system, enabling sufficient risk controls and requiring material information disclosure; towards safeguarding capital markets; and towards reducing their high levels of leverage.postprin

Advances in Crowdfunding

This open access book presents a comprehensive and up-to-date collection of knowledge on the state of crowdfunding research and practice. It considers crowdfunding models and their different manifestations across a variety of geographies and sectors, and explores the perspectives of fundraisers, backers, platforms, and regulators. Gathering insights from a wide range of influential researchers in the field, the book balances concepts, theory, and case studies. Going beyond previous research on crowdfunding, the contributors also investigate issues of community, sustainability, education, and ethics. A vital resource for anyone researching crowdfunding, this book offers readers a deep understanding of the characteristics, business models, user-relations, and behavioural patterns of crowdfunding

How does P2P lending platform reputation affect lenders’ decision in China?

Purpose – This paper examines how the impact of Chinese P2P platform reputation directly and indirectly (mediate effect) affects investors’ (lenders) investment choices. Design/methodology/approach – Using data collected from 478 P2P platforms, this paper calculates Platform Reputation via a beta function after establishing the Reputation mechanism by Game Analysis. This is followed by testing both the direct effect of platform reputation on investors’ investment choices (proxying by transaction volume) and the indirect effect through credit enhancing information using three regression models (Median regression, OLS regression, and random effect OLS regression). A robustness test by adding instrument variables is conducted to confirm the findings from the main regressions. Findings – In China, P2P lending platform reputations have played both a direct and indirect (through credit enhancing information) roles on investors’ investment choices. Originality/value – This paper expands the boundary of P2P online lending research by not only examining the direct, but importantly, the indirect effects of platform reputations

Marketplace lending and its chances and risks for key stakeholders

The P2P lending market has significantly increased during the last few years. In Switzerland, the credit volume has more than doubled in just one year. However, in an international comparison China and the United Kingdom take on the leading position in the booming market. Analysts predict that the P2P loan market reaches one trillion U.S dollars by the year 2050. Apart from that, the introduction of alternative credit provision challenges the traditional financing models. Hence, there must be several benefits for preferring a P2P loan instead of applying and investing via the traditional way. Despite the benefits, the recent developments have revealed risks which potentially have farreaching consequences. The global credit market cannot afford to ignore the influence of the P2P lending and therefore a deep understanding of the underlying processes and potentials are required. Therefore, this thesis investigates the attributes of marketplace lending and whether the risks outweigh the chances for key stakeholders. In order to answer the research question, the thesis follows a qualitative approach. Existing literature is reviewed, compared and extended through a back and forth theory search. Furthermore, an interview with the Swiss platform Cashare was conducted. Due to the increased popularity and pressure of crowdlending platforms, it was not possible to conduct further interviews. Nevertheless, based on the literature review scenarios and assumptions are elaborated in order to carefully evaluate opportunities and risks for the three key stakeholders. The findings demonstrate high profitable returns on a low-cost basis as main benefits for investors. However, high returns simultaneously imply higher risks such as credit and platform risks, which are valued to be the most significant. Borrowers, which represents the counterpart, are profiting from an inexpensive and convenient financing alternative. Debtors are not directly involved in risks but rather affected by uncertainties occurring from the market or the platform. The decentralization of credit risks, low-cost structure and automated processes are valued to be competitive advantages for a P2P platform. However, the big data approach used for the credit assessment as well as the cost structure first need to prove their potential during a full economic cycle. Besides that, a marketplace lender primarily has to deal with reputational and operational risks

Credit Risk Management of P2P Network Lending

This article first studies the literature of P2P online loans, including online loans, credit risk factors and models, and summarizes the current status of P2P and credit risk assessment management in China. Based on the loan data of domestic P2P lending platforms, this paper conducts an empirical study on credit risk assessment. This study uses random forest importance assessment and logistic regression classification for credit risk assessment to identify loan targets with higher probability of default and improve overall loan quality. This research used 10,930 loan data, based on 26 fields, and finally selected 20 model variables to participate in credit risk quantification through feature structure and feature analysis. The final modelling test results show that the model screening accuracy rate is 73.3%, indicating that this model has a good performance in the credit risk quantification of borrowers

Online Fundraising Through the Lenses of Law, Economics, and Sociology: Examples from American P2P Lending and Thai Rotating Savings and Credit Association

In recent years, online lending has become a new method of financing that allows people to lend and borrow anywhere anytime. Yet, due to its complex and wide-ranging operation, the online lending phenomena has become one of the most buzzing regulatory concerns. Online lending not only challenges incumbent loan providers like commercial banks by providing loans to unserved borrowers at attractive rates, it also presents unprecedented investment opportunities for individual lenders who are often referred to as ‘peer’ or ‘crowd’ to lend out their money commercially. In this dissertation, I explore how two different online lending methods help individual lenders who often lack financial sophistication to make safe investment and how laws and regulations may affect online lending businesses and their consumers. This dissertation includes two essays that examine two examples of online lending practices: peer-to-peer (P2P) lending in the United States and online rotating savings and credit association (ROSCA) in Thailand. The first essay argues P2P lending platforms originally endorsed interpersonal relationships in lending and adopted many peer-to-peer features, such as social networks, personal profiles and group affiliations because interpersonal relationships are valuable and imperative for individual lenders and borrowers on P2P lending platforms. Nevertheless, the laws and regulations on P2P lending in the United States have caused P2P lending platforms to relinquish their commitments to utilize interpersonal relationships. The disappearance of interpersonal relationship on P2P lending platforms results in worse economic and sociological outcomes for individual lenders.The second essay argues that interpersonal relationship is paramount to the success of ROSCAs in Thailand. Traditionally, ROSCA participants rely on their interpersonal relationships to lend and borrow from each other. Recently, an online form of ROSCAs has emerged and spread. Online ROSCAs allow strangers, who have no interpersonal relationship to easily create a virtual ROSCA. Such a risk alarms the financial regulators, lawmakers, and the public. Nevertheless, the current regulatory landscape on ROSCAs have also been developed based on a long concern of frauds created by informal fundraising methods. While the current regulatory regime aims to ban and restrict ROSCAs which are operate beyond a local and personal level, the regulations effectively deem the whole category of online ROSCAs illegal and drove them to operate outside to the formal financial system. Both P2P lending in the United States and ROSCAs in Thailand utilize interpersonal relationships among parties of lending transaction to address four fundamental concerns in lending: uncertainty, information asymmetry, interpersonal trust, and institutional trust. From an economic perspective, Ronald Coase’s proposition suggests that personal relationships may help reduce uncertainty and information asymmetry in economic transactions including lending. From a sociological perspective, Francis Fukuyama and Linda Molm acknowledge the importance of interpersonal trust and institutional trust within financial exchanges. Interpersonal relationships among actors of a financial transaction can build and maintain interpersonal trust and institutional trust. This dissertation also applies both the economic and sociological perspectives to understand how laws and regulations might affect P2P lending platforms, and traditional and online ROSCAs. The studies of P2P lending platforms and online ROSCAs exemplify how the current laws and regulations which were developed based on more traditional financial methods can shift new financial services, particularly online lending, into a worse position