Research on the healthy development of Internet financial management industry and risk aversion mechanism

Transcription

1 ORIGINAL ARTICLE Research on the healthy development of Internet financial management industry and risk aversion mechanism Yu Shiwen Wu Chang University of Technology, Hubei, Wuhan, Abstract: Internet financial management industry is an emerging industry. It helps solve the problems of financing difficulties of small and medium enterprises. On the other hand, it satisfies people's desire in investment and financing. It greatly promotes the development of our country's economy. However, more and more Internet financial management events, especially the boss running, investors losing everything, need to be supervised from multiple levels in order to maintain the healthy development of the Internet financial management industry. At the same time it also needs a number of measures to help the investors avoid the risk. Keywords: internet financial platform; the regulatory system; risk control; risk reserve 1. The current situation and development of Internet financing in China 1.1 The current situation of Internet financing in China The essence of the Internet economy is sharing. It can make the greatest use of resources. And as a part of the Internet economy, Internet finance is in the same way. It refers to that investors or families buy financial products through the Internet, and get access to financial advice and even online payment, self-help transfer, online insurance and other information services, usually in order to make their remaining idle funds get the maximum benefit. On the other hand, it means that businesses, families, individuals borrow money through the Internet platform to ease the financial stress or to achieve the role of chicken eggs [1]. They have the same nature and the sharing of funds and information. China's current development of Internet financing is very rapid. In the year 2015, the user scale of Internet financial products meets million. The number of P2P platforms that have attracted much attention in the past two years has been increasing. By November 30, 2016, P2P network loan platform had reached a total of By November 2016, P2P network loan cumulative transaction amount exceeded 3 trillion, reaching billion yuan. The overall transaction volume of national P2P lending industry was about billion, with year-on-year growth of 62.1%. The principal continued to rise, reaching billion. 1.2 The cause of Internet financing development The first is the rapid development of e-commerce, indicating that the maturity of China's Internet network establishment, which is the important hardware of the development of the Internet products. The second is that e-commerce made vast Copyright 2016 Yu SW. doi: /mmf.v1i.630 This is an Open Access article distributed under the terms of the Creative Commons Attribution-Non Commercial 4.0 International License ( licenses/by-nc/4.0/), permitting all non-commercial use, distribution, and reproduction in any medium, provided the original work is properly cited. 36 Yu SW. Modern Management Forum

2 number of Internet users gradually established a sense of network applications, not only in the information query, but also in all aspects of life. Furthermore, the development of e-commerce also makes online payment and online banking system more perfect, and security is gradually recognized. Therefore, the maturity of e-commerce laid the foundation of the development of Internet financing. For another cause of this, small and medium enterprises have big difficulties in financing. Now China's small and medium enterprises has become an important part of China's market economy, and every year is growing. But they are facing obstacles to financing difficulties. First, China's current capital market is not perfect, so it is difficult for ordinary small and medium enterprises to be listed and to obtain interest-free funds from the stock market. Moreover, China's current issuance of corporate securities has many restrictions and the issuance of bond financing is not easy, so the mainstream financing channels are commercial banks. But most of the commercial banks prefer to consider the stability of loans first, so compared to large enterprises, the small and medium enterprises that do not have much fixed assets that can be mortgaged and whose development trend is not yet obvious are not easy to get bank loans. All in all, the financing difficulties of small and medium enterprises undoubtedly provide a huge potential customer base for the development of Internet financing. 2. Problems exist in internet financial management products 2.1 Leaving blank in business regulations At present, private lending and folk credit transactions in China are also a blank area of law.and what is the nature of P2P credit lending companies and whether their deals have stepped on the red line of illegal financial transactions, which have made the prospects for peer-to-peer lending uncertain.they also temporarily unable to make long-term development planning, most companies can only take one step at a time, which is obviously unfavorable for development [3]. Internet finance belongs to the emerging industry, there is no clear industry norms, because the development of the industry is uneven, has not formed the scale effect, and no company has the absolute advantage, which means it is difficult to form the industry norms in the short term. At present, there are companies with emphasis on risk management, process gets more transparent and standardized, of course, there are also activities out of order and even fraud for the purpose of companies, which make operational risk increase.in addition, because of the disorderly competition, there is likely to be false propaganda, exaggerated publicity, the lack of risk tips. Just following most of the rules of the internet credit market environment has clearly led to a lack of norms for peer-to-peer development. 2.2 Credit and information risk The internet financial products project risk is high, the loan quality is far lower than the ordinary bank financial institutions.taking the real-name authentication system, but the loan verification program is relatively simple, and as an internet company, the collection of user information is not mandatory like banking system, so the financial companies to collect user information is facing great difficulties.therefore, no matter whether it is investment or loan, the risk is not low. Moreover, from the specific operation, for the bank charges are high, which can not timely inform information, the bank payment liquidation system does not support the P2P operation mode, so it s universal to use third-party Modern Management Forum Volume

3 payment.there is the time difference between the transaction information and the flow of funds, whereby a third party pays the intermediary account, which may result in a pool of funds, but in order to prevent the client from misappropriating funds, it is clear that our country has legally prohibited the funds pool.this significantly increases the credit risk [4]. Finally, the rapid expansion of customers, some companies even across the border of intermediaries, directly provide credit guarantees for transactions, which is not only suspected of irregularities, but also the expansion of risk.at the same time, the main business of internet financial management company is completed on the network platform, but the fund security and information security of network trading platform such as the third party trading platform is not fully protected, the public information system such as the central bank credit reporting and others often do not want P2P platform to open, so the security is not too high.for example, pay treasure account information theft caused the Taobao buyers, the owner of the funds are frequently stolen, which made people suspect the reliability of the real gold and silver trading on the internet platform. 2.3 The investment guarantee of usury is limited Since the customers on the internet finance platform are unable or difficult to borrow from the formal banking financial institutions, its customers are less concerned about interest rate than the bank customers, but the investors earnings on their platform are far greater than the return on banking products, it is easy to speculate that the loan interest rate must be high, in the lack of regulatory and institutional environment and industry environment easy to generate illegal funds, also have loan sharks suspicion. Investment financing products do not promise the principal guarantee, but set up a risk fund to protect the investment safety of investors. But this protection is also " limited ". If the risk margin is not sufficient, reimbursement will be automatically stopped until the account is provided with a new risk reserve, which is later released into the pool [5]. Therefore, in fact, the payment of interest is limited, and the time can be dragged very long. 3.Analysis of causes of Internet financial product problems 3.1 Company s lacking of risk control measures At the earliest, internet finance was under CBRC s (China Banking Regulatory Commission) administration and management. However, with newly developing of Internet financial trades, many problems have exposed, destabilized and deteriorated internet finance s development. Worse still, they have also added uncertainties to this new industry[6]. Relevant laws and regulations are not yet perfected. Internet finance industry could only develop stably and healthily when laws and regulations perfected. Vast majority of p2p Internet finance companies are established not a long time, industry standards and laws are not yet perfected. Besides, commercial banks refuse to provide public credit information to these companies, their skyrocket like development and increased the cost of risk control system and uncertainty of benefit determining process. Most finance companies have neither proper condition nor energy to build risk control system. Supervising cross-border finance is still a gray zone that adds uncertainties to companies future development. In addition, China s risk control system is far from perfect. Not a few middle and small-sized companies have both disguised and undisguised methods of work, the idea of comprehensive risk control still needs to be accepted by the 38 Yu SW. Modern Management Forum

4 public. 3.2 Incomplete capital market development Market in China was set up to provide funds to the state-owned enterprises, growth enterprises market was established long time later, not to speak of the incomplete laws and regulations. First of all, the delisting system which requires that delisting shall start from main board is obviously not a reasonable regulation, since small and medium-sized enterprises cannot delist. Undoubtedly, this has put investors in risk. Moreover, compensation system has not been established yet, which leads to higher investment risk since many investors could only invest at their own risk, thus contribute to that most investors in Chinese stock market chase short-term profit and pocket the difference blindly. On the other hand, p2p platform springs up to new product because of the over-risked stock market. This skyrocketing development do more harm than good to p2p itself. Due to various kinds of problems in capital market, China s capital market cannot deploy social resources efficiently, but also let small problems emerge endlessly under system problem, regardless of all other inconveniences such as p2p companies listing difficulty, financing difficulty, lack of supervising. As a matter of fact, hidden risks will exist all the time in p2p companies developing process, as long as capital market cannot bring efficient market regulation to the entire financing market. 4. Measures to enhance the utility of Internet financial products 4.1 Government strengthen supervision, and industry strengthen self-discipline The legislature introduce P2P network loan management approach as soon as possible and clarify its legal nature, access standards, exit mechanism and so on to the legal form. The first is the use of the company system. The minimum amount of registered capital is not required if it is legitimate; the qualifications of executives should under the regulatory approval. In addition to this, a complete organization, internal control and wind control system, anti-money laundering measures should also be included. Moreover, we must strengthen the dynamic monitoring. CBRC provides dynamic regulation to capital investment, borrowing purposes, guarantees and mortgages, borrowing period, loan interest rates, etc. and tracking monitoring to the lenders with amount of loans and high frequency to prevent underground banks and other illegal risks. Once the risk is found, they can provide timely risk tips and supervise to improvement. From organizational form and operating mode of P2P, its management should be involved in business management, network management, banking and other departments of the terms of reference. But its provision of loan intermediary and investment banking business is still outside the supervision of various departments. At present, the Internet financial management market is supervised by the China Banking Regulatory Commission, the Ministry of Industry, Ministry of Public Security and Ministry of Communications jointly. For most of its borrowing are small and scattered. Therefore, we can adopt a loose regulatory model. We do not set hard requirements to the capital adequacy ratio, registered capital and liquidity. The other three ministries and commissions regard CBRC as the center, and perform their duties the CBRC provides pre-approval business supervision and exit approval to P2P platform; Industry and commerce department provides registration to ensure its legitimacy; public trust department do the recording and review the content of the sites security and legitimacy; other departments work in conjunction and provide joint supervision. Industry associations around the world generally play an important role. They can reduce the cost of regulatory Modern Management Forum Volume

5 authorities; their industry rules are more down to earth to promote the healthy development of the industry. In August 2015, the China Microfinance Coalition officially issued the Credit Convention. The first is to establish a public information platform to ensure the sharing of information; Followed by the establishment of the risk early-warning mechanism to urge members to submit annual reports for tracking and monitoring; Finally, there must be reward and punishment mechanism, which cooperate with government regulation to promote its healthy development. 4.2 Risk prevention to the platform Firstly platform shall strengthen pre-loan investigation and limit the scale of borrowing. In detail, to lenders, platform shall focus to check the capital source and prevent from illegal fund flowing and grey income digesting. As to the borrowers, platform shall focus on use of fund and prevent illegal use, require borrowers to provide related proof materials, and confirm the interest rate and refund date. Furthermore, platform could complete credit rating system. With limited fund scale, p2p platform could only provide limited amount of guarantee. Hence a proportion-fixed prohibited transaction regulation could be set up, which regulates that borrowing would no longer be allowed when borrowing amount has come to certain proportion of lending amount[9]. In addition, platform could set maximum borrowing amount for borrowers, for example Paipai has set borrowing amount for the users. Of course, borrowing amount shall be established more clearly n accordance with each borrower s credit rate. Secondly platform shall build funds trusteeship system. Though internet financing products have actually put loan loss provision funds under trusteeship, it is far from enough. Platform shall divide its owned funds and funds of localities, and create a special fund escrow account which enables lenders directly transfer funds into this account, thus ensures fund security and lowers risks. Thirdly platform shall build loan loss provision standard. At present, platform actually has specific loan loss provision system that only guarantees part of interests and do not guarantee principals, which is still high risk. Every large p2p platform has its own loan loss provision system but do not have a unified standard. Therefore, self-regulation association shall cooperate with CBRC, and establish a calculating, managing method that could cover to loan loss provision funds, thus reduce risks for vast p2p platform clients financing or investing needs, and promote to its healthy development. Fourthly, platform shall promote better information disclosure regulation. Most p2p platforms, such as Renrendai, it has trusteeship measures, but does not have authentic materials for clients investigation. Companies shall provide authentic materials to clients and promote better information disclosure, such as company manager change situation, fund trusteeship report, registered capital and change situation, risk warning, product manuals. 4.3 Expand the social public risk publicity, implement risk aversion mechanism To strengthen prevention and fight against illegal fund-raising efforts, the internet finance and financial management platform boom growth, the risk awareness of many people in China is not strong, some false propaganda is more obvious, however, for some people are not strong sense of risk, and the lack of knowledge of investment, leading to some false advertising illegal companies frequently succeed, so strengthen propaganda, promote rational investment, strengthen prevention and crackdown on illegal fund-raising efforts, making efforts to promote the resolution and disposal of regional financial risk, effectively protect investors' legitimate rights and interests, which can promote the healthy development of internet financial management platform [10 ].Chen Shan. analysis of China's internet finance 40 Yu SW. Modern Management Forum

6 In addition, investors need to carry out effective risk aversion protection, most of the problematic internet financing companies generally have the following characteristics: Firstly, shareholders or boss knowledge is not enough,there is no experience, running a financial platform for online business, not have the experience of private lending. Without the internet experience can not solve the operation of the web site, as far as the platform of the run, compared with the experience of the bank, the opportunity is more. Secondly, internet financing companies are often easy to choose the type of registration, general investment management company, and electronic commerce limited company registration, the two registration is relatively easy, there is no threshold, convenient platform to open the company on the financial products. Thirdly, the geographical distribution is in the coastal or small areas. Among the platforms with problems, Zhe Jiang, Guang Dong, Jiang Su are the first three and have more active private lending. While other places, such as Hu Nan Huaihua, An Hui Tongling, are smaller and have rapid information dissemination. So once a financial platform gets popular, people will immediately follow the trend to open, but with small size and talents scarcity. If a boss s motive is impure, all the new-established platforms will immediately collapse one after another. Fourthly, the duration of establishment is short. Some platforms were on the accident within 6 months. With the concentrate period of capital to withdraw, no follow-up capital inflows and capital chain breaks, it will make investors feed on illusions and finally disinvest. Fifthly, to use high interest rate induction. The second standard and short-time bids are two illegal way of getting money. High interest rate induction is the main means. Because of its short duration, high interest rates and quick money-return, the second standard once became a marketing tool, and also a bad company's usual method. Finally, without the usage of third-party funds trusteeship, a lot of platforms directly put money into the company provided accounts or personal accounts at the counters of the bank branches. They also encourage investors to top up offline, not through third-party payment. All these make it more convenient for financial companies to use the funds and disinvest at any time. Reference 1. Huang Zhen, Comment on the Internet Finance, China Machine Press, 2015: Wan Jianhua, E-times for Finance, China Citic Press, 2014: Yu Fenghui, Internet Financial Revolution, China Industry and Business Press, Jul, Li Yaodong, Internet Financial Framework and Practice, Electronic Industry Press, 2015: Yao Fangping, Internet Finance, China Citic Press, 2014: Yang Qi, Internet Finance Product s Innovation Advantages and Development Researches, Finance and Economy, 2015(5): Liu Yuxin, Research on Internet Finance Product s Developing Strategies, Electronic Commerce, 2016(8): Wang Wucheng, Internet Finance Product s Risk Analysis and Supervising Suggestions, Times Finance, 2014(6): Deng Wenmin, Analysis on Internet Finance Product s Usage Factors with ATM Model, Jiangsu Commercial Forum, 2016(7): Chen Shan, Analysis on China s Internet Financing Product s Developing Status and Strategies, Modern Industrial Economy and Informatization, 2016(11): Modern Management Forum Volume