Demand to Regulate Social Lending

Jack Humphrey, Regulatory journalist
September 20, 2010 /

Zopa which was launched five years back has requested to link the borrowers and lenders transacting online.  Zopa is United Kingdom’s first online business which linked the borrowers and lenders. This was done with a view to channelize savings to small businesses. Quakle and Yes-Secure are the new entrants in this field and they have also expressed desire for regulating social lending.

The lending sector has become digital and most of its transactions are now being carried through the internet. The online operations of the lending companies and the borrowing businesses are being monitored by Office of Fair trading (OFT).  Zopa requested the government to make Financial Services Authority in-charge of these social lending transactions.

Zopa’s chief executive Giles Andrews has stated that capital standards should be set by FSA. The directors should also be approved by it and there should be effective checks on risks. Zopa is now reported to have unsecured lending of about 0.1%, bad debts at 0.7%, and approximately 100 million pounds of funds to be given to borrowers.

The call for regulating the transactions is of urgent importance because of the recent financial crisis. It has been asserted that in a bid to expand their business faster the companies may resort to lending to ventures which are at high risk as far as repayment is concerned. These companies may also try to project their products in a wrong manner in order to lure buyers or investors. All these conditions are precarious for the economic health of the nation and hence there is a dire need to regulate the social lending practices.

Although this proposal has been supported by almost all but some argue that the market is not still large enough to be regulated by the FSA and that the new rules and regulations may discourage small investors and borrowers.

 

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