As financing alternatives, such as peer-to-peer lending and equity crowdfunding platforms, continue disrupting the finance sector, there is a great need for rules and regulations to govern and protect both lenders and borrowers. Furthermore, if these alternatives cause permanent disruption in the finance sector, then these regulations need to be set out prudently.
The problem is that regulators and alternative finance stakeholders have continued to disagree on the rules that should be enacted in the industry. This has been largely due to lack of adequate data. For instance there is no complete and up-to-date information about the size, scope and scale of the rapidly escalating digital alternative finance industry in the Asia-Pacific region.
Australia’s University of Sydney Business School, UK’s University of Cambridge and China’s Tsinghua University have all joined hands to carry out the first comprehensive study on the rapidly growing alternative finance industry in China and across Asia-Pacific. The study will run through mid-December 2015, using a similar study of Europe and the UK conducted earlier in the year as its gauge and guide. The participants of the study are optimistic that by early 2016, there will be comprehensive information about different types of online financing platforms, scale, size and recent growth of alternative finance industry in China, Australia, Singapore, New Zealand, and other countries in the Asia-Pacific region
This collective data is a crucial tool in establishing alternative finance rules. It will give lenders and borrowers the chance to understand the market more efficiently and be able to make good investment decisions. This means that buyers will know which high quality products are worth their hard-earned money, and which ones they should steer away from. For the alternative finance platforms to be successful, they need to know – among other data – the minimum credit worthiness requirements for borrowers, the risk exposure of non-accredited investors, and effective disclosures.
To that extent, as alternative finance platforms reduce the charges and processes involved when connecting borrowers and lenders, all participants need to know the impact of each action. For example, peer-to-peer lenders should understand that they are likely to bear losses if borrowers default to repay their loans.
If there are no minimum lender protection and guarantees, it is also likely that charges and interest rates will rise as good quality borrowers get driven away by those of a lesser standard. This may even cause the alternative finance market to collapse. Sustainable business practice is also required for the sector to continue growing.
Therefore the need for alternative finance minimum regulatory guidelines is inevitable. These minimum standards will protect the sector against “bad players” so that everyone can benefit from digital disruption in the finance sector. For these minimum standards to be set appropriately and intelligently, comprehensive data on the alternative finance sector is unavoidable.