This is a guest post by Hungyi Chen, Ph.D. candidate at the Graduate School of Law, Nagoya University. He is researching alternative finance in East Asia.
1. The recent development of online alternative finance
Given the recent trend that Fintech is rapidly growing in the world, in order to maintain the role of international financial center, the financial authority of Hong Kong has been aware of issues relating to Fintech industry. On November 13th, 2015, Stored Value Facilities Payment Systems, such as online stored payment business as PayPal, is allowed to operate by non-bank. This is a milestone for Hong Kong including non-bank of operating business highly relevant to conventional bank.
In order to enhance the development of startups in Hong Kong, financial technologies (Fintech) are emphasized by the authority since the investment of Fintech is a target of many venture capitalists. Nevertheless, compared with other jurisdictions in Asian countries, which already lightened entry requirement to encourage non-bank for engaging business of equity-based crowdfunding, such as Japan, Korea, Malaysia, Taiwan, and Thailand, the entry requirement of Fintech, especially alternative finance may be stricter in Hong Kong.
Until now, there is still no equity-based crowdfunding platform established in Hong Kong. However, the huge demand from capital market gradually leads the development of crowdfunding in Hong Kong, especially debt-based crowdfunding, which is also known as Peer-to-Peer Lending. Currently, there are 4 major peer-to-peer lending platforms, including BestLend, GoLend, Monexo, and WeLend.
2. Relevant industry background
With unique selling factors, the peer-to-peer lending platforms may have a rapid growth in the near future. On one hand, from viewpoints of investors, the deposit rates of savings are from 0%~0.001%. Even the deposit rates of fixed deposit of 12 months are from 0.15%~0.2%. Additionally, inflation rates are around 4% continuously in 2013 and 2014, which means the real interest rate may be negative in Hong Kong. Accordingly, there are strong incentives for investors to vitalize their capital.
On the other hand, from viewpoints of borrowers, there are two fundraising channels for loans, including banks (Licensed Banks, Restricted License Banks, Deposit-taking Companies) and Money Lenders. Since the financial authority restricted the mortgage market of banks to prevent a real-estate bubble, it is difficult for borrowers to get the loan amount they need from banks by mortgage. As a result, they turn to Money Lenders as an alternative opportunity. Although the interest rates of Money Lender are generally higher than banks, compared with banks which normally take 1-6 weeks for examining procedure, the process of Money Lender is more simplified. Continue reading