S. Korea to implement law on P2P lending

SEOUL, Aug. 26 (Yonhap) -- South Korea's new law on peer-to-peer (P2P) lending is expected to help address deceptive practices and better protect consumers, industry watchers said Wednesday.

The law, which takes effect Thursday, requires all P2P lenders to have paid-in capital of at least 500 million won (US$421,000) each and register with the country's financial regulator within a year.

In the case of a non-registered P2P lender, the lender's operator will face a fine of less than 100 million won or a jail term of less than three years.

Also, state-registered P2P lenders must publicly disclose their financial information, have a system of computers and security equipment, and be banned from selling high-risk instruments.

P2P lending is a new type of loan extended to individuals or businesses through social networks and the internet, covering a wide range of services, including loans to startups and self-employed businesspeople.

Low-credit borrowers, who cannot have access to banks and other non-bank financial institutions, usually resort to P2P lenders.

Market sources said the implementation of the new law will likely help root out fraudulent practices and protect users of the novel lending service more effectively.

With a legal framework put in place, P2P lending could emerge as an alternative mechanism for providing mid-rate loans to potential borrowers, they added

Despite its rapid growth, P2P lending in South Korea has largely been unregulated, spawning a range of problems, including fraud and soaring loan delinquency.

Outstanding P2P loans extended by 241 companies stood at 11.3 trillion won as of Tuesday, compared with 8.7 trillion won at the end of last year, according to market tracker Midrate.

Their loan delinquency rate soared to 16.3 percent from 11.4 percent over the cited period.
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