 |
| gettyimagesbank |
By Lee Kyung-min
Skepticism is growing against peer-to-peer (P2P) lending, a method of debt financing via online platform, Tuesday, amid a slew of fraud allegations that the new financial service providers exploited the lack of reliable appraisal data needed for ensuring transparent and accountable transactions.
A lack of accountability of creators and promoters of the new lending will lead to immense investor losses, tainting the once-touted "innovative" method of borrowing between individuals and companies on a digital platform bypassing traditional intermediary banks.
Many investors are expected to incur losses misled by the much-hyped "near-term, high-yield" investment that promised up to 15 percent in annual returns with less than 2 percent delinquency ratio, given the principal and interest paid on initial investment of previous investors were pulled from a group of new investors.
Three key officials at Pop Funding, a P2P lender whose collateral was stockpiles of goods to be sold on TV shopping channels, were indicted with physical detention for fraud, July 17.
Prosecutors at Suwon District Office said the three defrauded 156 investors of 55.1 billion ($45.9 million) in funds pooled by six asset management firms by forging appraisal documents for collateral.
The lender allegedly continued to attract new investors to offset 14.5 billion won in losses incurred until early 2018 due to mismanagement, mostly by transferring funds from new investors to pay previous ones the principal and interest on products that neared maturity.
The lender-created financial product was repackaged and sold to about 23,000 investors, reporting sales of 166.8 billion won. The amount yet to be redeemed stands at 105.9 billion won, over 63 percent of the total.
On a similar allegation, police questioned the head of Nexrich Holdings, largest shareholder of Nexfun, a P2P lender that lent money to used car buyers with the purchased car as collateral, July 9. Its office in southern Seoul was searched the same day.
Police said the company head managed to record some 25.1 billion won in lending, mostly by stressing that investors can take the collateral as a backup, a much safer investment than credit-based lending.
Yet of the 1,809 financial products sold, only two were collateral-backed lending worth 43 million won. The remaining amount was all credit-based loans.
The lender laid off all of its workers and shut down business following the search, saying it will not be able to return funds to investors.
The slew of incidents bode ill for the industry at large given a rapid expansion over the past few years.
According to Korea Peer-to-Peer Financial Investor Association, the movable property market in Korea quadrupled to 1.1 trillion won as of June from 259 billion won in December 2018.
The explosive expansion was bolstered by the 2015 policy initiative of the Financial Services Commission (FSC).
Yet the lender's products have since been subject to little scrutiny as no data remains available to verify product liability other than that submitted by the lenders.
According to MIDRATE, a P2P lending data service provider, some 408 billion won of about 2.4 trillion won P2P-pulled funds remains unreturned despite investors' redemption request, pushing the delinquency ratio to 16.1 percent, about triple the 5.5 percent rate of 2017.
