Why We Aren’t Surprised that Ezubo, the P2P Lender in China, Is a Ponzi Scheme


The news is out. Ezubo is a Ponzi scheme. The lending company, a P2P platform in China, has bilked 900,000 private investors out of a stunning US$7.6 billion. Ezubo is China’s largest ever online scam—but it is not alone. It is one of 2,612 P2P sites that bring lenders and borrowers together in China’s $2.6 trillion wealth management industry. Of those, the China Banking Regulatory Commission (CBRC) says that more than 1,000 are “problematic.” We expressed concerns about this very P2P lending market in China in our FI2020 Progress Report released four months ago.

But first, how could this happen with Ezubo? Ezubo had been in the vanguard of the hot e-finance market, and was named “online credit financial brand of the year” by China’s National Business Daily in 2015. It was lauded on Chinese state television and received implicit endorsement from high government officials. It engaged in cross-border trading with Myanmar—something that would not seem possible without government oversight. China is supposed to be in a big campaign to root out corruption. Yet it seems there are just two possibilities: Chinese regulators either knew about the scam and kept silent, or they missed it altogether. Could Ezubo have duped or paid off every one of the local, provincial, and national authorities who had oversight?

That’s why people who were suddenly stripped of their wealth not only feel duped by Ezubo, they also feel duped by the government. After all, this is only the latest allegation of fraud against a market that has been enthusiastically championed by the government and only loosely regulated.

While we didn’t call out Ezubo by name, we did throw down a warning about the Chinese e-finance explosion in our FI2020 Progress Report, saying:

The Institute of International Finance reported in November 2014 on the particular challenges of exponential growth in financial services through e-finance in China. The report lauded the great promise of e-finance for improving financial inclusion, but noted concerns about consumer protection. In the midst of stratospheric growth of P2P lending, China has seen many P2P lenders abruptly closing shop and vanishing. In 2014 alone, 275 P2P platforms in China failed. China has proposed regulations designed to crack down on platforms that are not sufficiently capitalized or are at higher risk of default. In the meantime, individual investors are at risk. In some of the most egregious cases, P2P fraudsters absconded with investors’ money on the first day that they opened for business.

This paragraph was part of our analysis of Client Protection in the Digital Age. In the FI2020 Progress Report, we said that technology has the potential to decrease fraud and increase protection—but that technology can also bring new dangers, including new kinds of fraud that can emerge when regulators have not caught up to the advances of financial technology. No matter what technology is involved, the bottom line is that customer protection policies need to develop alongside technology innovations.

In China today, the price of failing to do so is 900,000 people who have been robbed of their wealth—and 21 Ezubo executives who are now in custody. We’ll hope that client protection indeed catches up to the P2P platforms, lest another Ponzi is in the works.

Kudos to the sharp economists of the Institute of International Finance who first clued us in to the dangers of China’s e-finance market.

Financial Inclusion 2020 (FI2020) is a global multi-stakeholder movement to achieve full financial inclusion, using the year 2020 as a focal point for action. This blog series will spotlight financial inclusion efforts around the globe and share insights from key thought leaders in financial inclusion, with a specific focus on quality beyond access.

Have you read?

Insights into an Evolving Peer-to-Peer Lending Industry in China

Rating Progress on Financial Inclusion on a Scale of 1 to 10

China’s Microfinance Landscape: Nonprofits, Microcredit Companies, Rural Financers, and Alibaba


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