Can Social Media Advance P2P Lending in China?

Ask any Western blogger or human rights activist about China, and they’ll tell you that the People’s Republic has evolved into the poster child for Internet censorship.

The Golden Shield, also known as the Great Firewall of China, is the subject of countless blog posts and Web media articles.  China’s decision to renege on its pledge to provide unrestricted internet access to journalists at the Beijing Olympics became one of the biggest stories of the Games.  And the shutdown of Twitter, Blogger and others on the anniversary of the Tiananmen Square massacre generated criticism from a myriad of social media experts.

But despite the fact that China and censorship have become synonymous, social media has given rise to a unique philanthropic venture based in Shanghai.

QifangPeer-to-peer (P2P) lending, popularized by organizations like Kiva and The Grameen Foundation, has found a niche in China with Qifang, a microfinance website for Chinese students who are looking for loans to finance their education.

“Qifang” comes from the Chairman Mao quote, “Bai Hua Qi Fang,” meaning, “Let a hundred flowers bloom.”

Qifang primarily serves students at three or four-year universities or colleges and post-graduate training programs.  Any Chinese undergraduate who has received an admission letter or valid student ID can post their needs on www.qifang.cn.  Loans range from RMB 3,000 to 100,000.

Lenders include banks, corporations, NGOs, non-profits, philanthropists, and individual private donors.

In China, there are 76.7 million Internet users between the ages of 18 and 24 years (no other age group comes close in terms of number of users).  Qifang’s founder estimates there are 25 million students in China who pay an average tuition of $700 a year.  That translates into $17.5 billion in potential loans, providing Qifang with an enormous target market given that it has so few competitors.

The combination of Qifang’s web services and social media tools help students and lenders establish “communities of trust” built around supporting education.  Qifang’s primary social media tools are a blog (which is nearly impossible to review in English), and four unique A Qifang student widgetwidgets.  Each widget is a compilation of information about a student in need including a profile picture, the name of the student’s school, the amount of their requested loan, the amount they have raised so far, and a description of their need (e.g., “I want to finish college without any debt”).

The student featured in the widget is randomly selected by Qifang, and the widget can easily be pasted into blogs, websites, or social media profiles.  When a student’s loan has been 100% funded, Qifang’s system randomly selects another listing that needs promotion.

Qifang labels itself as an “innovator in technology,” but the principles which guide its strategy in China are relatively simple and straightforward:

  1. Find a gap in the market and fill it.  Experts contend that P2P lending will have a greater impact in China than in Western countries because of the absence of other consumer banking alternatives.  Today, Qifang has only one competitor, and with 25 million students in China, there is a great need for reliable loan solutions.
  2. Calculate and develop strategies to mitigate risk.  Each Qifang loan recipient is required to scan in their national ID cards to verify who they are, and list their school, major, grades, hometown, parents ID cards and income before obtaining a loan.  Qifang is reportedly creating partnerships with the schools directly so that the information students’ supply is verified, and so that loan payments can be made directly to educational institutions.
  3. Support existing government initiatives to avoid controversy.  Bloggers have speculated that Qifang’s platform is indirectly supported by the Chinese government’s recent push for creating a more “civil society” in China, a society in which citizens trust one another more.  If this is true, it puts Qifang in the enviable position of being a company which (indirectly) advances government initiatives. (Note the founder of Qifang attributes some of their success to “a really supportive government” in the video above.)

It will be interesting to see if other microfinance sites pop up in the wake of Qifang’s success, and if they use social media to do it.  It’s possible that they’ll operate using the same guideposts I’ve described here.  But if China is at a tipping point for embracing social media for social good, it also has the potential to devolve further into Internet censorship.

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2 Responses to Can Social Media Advance P2P Lending in China?

  1. An excellent analysis of Qifang’s potential to change the lending landscape for microloans in China, particularly given the research you had to do to gain an understanding of the site without speaking the language. Another great blog post from you and smart thinking to share. Though this is the last blog post for class, you should consider blogging actively as part of your day job if it allows it. You seem to have a natural ability for it. (4)

  2. Paul Bove says:

    Alex: Thanks for the comments. Gotta say, I enjoy your posts as well. You’ve got some really solid research skills and depth to your posts. This one in particular is really interesting in light of Kiva being the first client of the semester. The idea of students being able to receive funds for school online is incredible. Bullet 2 is particularly interesting. Qifang is very thorough to require all the background information from the students. Smart idea.

    I’ve always wished that somebody could bid on my student loans on ebay, but the winner’s not really getting anything other than my debt, so this Chinese program is much better 😉

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