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Optimal Regulation of P2P Lending for Small and Medium-Sized Enterprises

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  • Naoko Nemoto
  • Bihong Huang
  • David Storey

Abstract

This paper describes and evaluates the range of P2P lending systems on offer to small and medium-sized enterprises (SMEs) in several countries, considering different regulatory regimes. In some countries, there are problematic incentives for platforms that rate credit and originate loans without holding the risk of these loans. In addition, when investor returns are guaranteed by platforms, investors have no incentive to distinguish among risk categories. In several countries, notably the People’s Republic of China, P2P platforms have engaged in fraudulent behavior and Ponzi-like schemes. On the other hand, stringent regulation in the United States has excessively impeded new entrants from providing competition to established platforms. Regulators should be mindful of these risks and others, while also seeking to capitalize on the benefits that the sector offers for providing new funding opportunities to SMEs. In our view, the United Kingdom can be suggested as an effective model to follow because of its tailor made and flexible regulation.

Suggested Citation

  • Naoko Nemoto & Bihong Huang & David Storey, 2019. "Optimal Regulation of P2P Lending for Small and Medium-Sized Enterprises," Working Papers id:12964, eSocialSciences.
    • Handle: RePEc:ess:wpaper:id:12964
    Note: Institutional Papers
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    File URL: http://www.esocialsciences.org/Download/repecDownload.aspx?fname=A201917142550_29.pdf&fcategory=Articles&AId=12964&fref=repec
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    References listed on IDEAS

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    1. Andrea M.L. Perrella & Éric Bélanger & Richard Nadeau & Martial Foucault, 2016. "Does a Growing Income Gap Affect Political Attitudes?," Canadian Public Policy, University of Toronto Press, vol. 42(1), pages 35-48, March.
    2. Independent Evaluation Group, 2016. "Growing the Rural Nonfarm Economy to Alleviate Poverty," World Bank Publications - Books, The World Bank Group, number 28971, December.
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    Cited by:

    1. Chen, Xiao & Huang, Bihong & Shaban, Mohamed, 2022. "Naïve or sophisticated? Information disclosure and investment decisions in peer to peer lending," Journal of Corporate Finance, Elsevier, vol. 77(C).
    2. repec:thr:techub:1009:y:2020:i:1:p:678-682 is not listed on IDEAS
    3. repec:zbw:bofitp:2019_023 is not listed on IDEAS
    4. Arif Perdana & Pearpilai Jutasompakorn & Sunghun Chung, 2023. "Shaping crowdlending investors’ trust: Technological, social, and economic exchange perspectives," Electronic Markets, Springer;IIM University of St. Gallen, vol. 33(1), pages 1-17, December.
    5. Yang, Junhong & Wu, Yu & Huang, Bihong, 2020. "Digital Finance and Financial Literacy: An Empirical Investigation of Chinese Households," ADBI Working Papers 1209, Asian Development Bank Institute.
    6. Kamilė Taujanskaitė & Eugenijus Milčius, 2022. "Accelerated Growth of Peer-to-Peer Lending and Its Impact on the Consumer Credit Market: Evidence from Lithuania," Economies, MDPI, vol. 10(9), pages 1-17, September.
    7. Maria Gabriela Coloma, 2020. "Issues in Fintech Regulation: What can Peru learn from other countries?," Technium Social Sciences Journal, Technium Science, vol. 9(1), pages 678-682, July.
    8. Zhaoqing Sun & Jianxu Liu & Roengchai Tansuchat, 2023. "China’s Digital Economy and Enterprise Labor Demand: The Mediating Effects of Green Technology Innovation," Sustainability, MDPI, vol. 15(15), pages 1-24, July.
    9. Funke, Michael & Li, Xiang & Tsang, Andrew, 2019. "Monetary policy shocks and peer-to-peer lending in China," BOFIT Discussion Papers 23/2019, Bank of Finland Institute for Emerging Economies (BOFIT).
    10. Funke, Michael & Li, Xiang & Tsang, Andrew, 2019. "Monetary policy shocks and peer-to-peer lending in China," BOFIT Discussion Papers 23/2019, Bank of Finland Institute for Emerging Economies (BOFIT).

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