NLVC backs Chinese P2P lending platform Dianrong

It is the latest of a string of investments in Chinese P2P lending platforms, which connects individual lenders with small-scale borrowers, essentially meeting the needs of small and medium-sized enterprises that don't qualify for bank financing.

Dianrong was launched in March 2013 by Soul Htite, a former Oracle executive who co-founded US-based P2P lending service Lending Club, and Yuhang Guo, an intellectual property lawyer. The company has a partnership with China Orient Asset Management Corporation, intended to support risk control management and platform security.

As of November 2013, Dianrong's trading volume was in excess of RMB100 million ($16.5 million) with more than 10,000 registered users. The average annual rate of return for lenders is 14-17%, while Dianrong guarantees participants will have 100% of the principal returned to them.

Ray Yang, a managing director at NLVC, said in a statement that the firm has been tracking the rapid development of internet technology and the role it can play in promoting financial sector inclusion. He estimates the P2P lending market is worth RMB20-40 billion, but expects annual growth of more than 300% over the next 5-10 years.

Despite this rapid growth, the estimated 2,000 P2P lending platforms in China are largely unregulated, prompting concerns that low barriers to entry and insufficient collateral mechanisms could lead to a spate of fraud and defaults.

This has not put off VC investors. In November, Softbank China Capital provided a Series A round of funding for Yooli.com, a P2P platform set up by Yannan Liu, formerly of Merrill Lynch and TPG Capital. Rival PPDai received funding from Sequoia Capital in 2012 and reportedly secured further capital from Alibaba Group's finance arm last year.

CreditEase, China's largest P2P platform, has received investment from IDG Capital Partners, Morgan Stanley Private Equity Asia and KPCB since its inception in 2006. It expanded quickly and now provides a range of consultation services, including wealth management, credit rating and microcredit lending.

Last year the company teamed up with IDG to create a microcredit fund, which will back other financial services start-ups.

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• Topics
• Financials
• Venture
• Early-stage
• Greater China
• Northern Light Venture Capital
• China
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• Financial Services