China’s nude loans fill female students’ pockets but suck them dry

China’s nude loans are a sign of the country’s deficient student loan system. Beijing must create proper credit-borrowing channels specially catered to students to solve the problem.

by Tan Jie Ying

The case of Xiaong Xiaoting once again thrusted P2P lending business into the limelight.

In April this year, Xiong took her own life in a hotel far from her hometown in Xiamen. Incapable of repaying a debt of 570,000 yuan (US$82,722), Xiong’s circumstances worsened as online loan sharks threatened to make her nude photos public. She took her own life a few days after her mother received her nude photos.

“Nude loans” involves offering one’s nude photos to secure credit. Nude loans first gained nationwide attention in December 2016. The China Youth Daily discovered 167 women’s nude photos and obscene videos online. These women, many of them in their early 20s and receiving college education, handed over their nude photos and videos as collateral for loans from peer-to-peer (P2P) lending platforms.

P2P lending platforms facilitate the rise of nude loans

P2P lending platforms function as an “information intermediary.” This means lenders on these platforms raise money on behalf of their client and ensure client’s repayment. This feature differentiates P2P lending platforms from traditional financial institutions and makes them an appealing alternative to institutions such as banks.

P2P lending platforms are not actively regulated by any legitimate financial institution or other Chinese authorities. This means low-entry barrier to assessing credit and explains P2P lending platforms’ surging popularity. Between 2012 and 2015, the number of P2P lending platforms in China grew 18 times, and total transaction volume increased 40 times.

P2P lending platforms’ lax regulation lowers the stake for lenders to enforce repayment lawfully. This explains why nude selfies are increasingly used as debt collateral on P2P lending platforms despite their absurdity.

P2P lending platforms are the only source of credit for Chinese college students

A key reason for P2P lending platforms’ prevalence is their popularity among Chinese college students seeking loans. The market for P2P lending business is estimated to be worth US$15 billion thanks to China’s 37 million college students.

In China, P2P lending platforms are most college students’ only recourse. This is because the high default rate among students compelled the China’s Banking Regulatory Commission (CBRC) to prohibit local banks from issuing credit cards and personal loans to students below 18 years in 2009. This has cut off almost all legitimate sources of credit for loan-seeking college students.

College students’ options to access loans are further constrained by the country’s inadequate student loan system. Banks are hesitant to issue student loan packages without sufficient financial support from the government. Commercial student loans are in themselves not cost-effective for profit-making banks. It is only until recently China’s state-owned banks are starting to offer student loans to college students to reduce their reliance on fraudulent online lending sites.

China has a loan programme for college students in straitened circumstances. Students must repay their debt 20 years after graduation in return for financial assistance throughout their tenure as a college student. But here is the downside: this programme has a quota of 20% of undergraduate students, and at most only 6,000 yuan (US$881) will be disbursed for each student per year.

This quota left many college students looking to Chinese lending platform Uni-lending for quick credit. “Uni-lending was famous among my schoolmates,” said college student Li, even though Uni-lending’s interest rate exceeded 10%.

This explains why college students are driving business for many P2P lending firms. Chinese instalment payment platform Fenqile obtained US$1.6 billion in loan volume in 2016. Chinese student microloan site Qudian chalked up more than 10 million users only three years after its launch. These platforms’ student-targeted marketing strategy accounted for their success.

Online lenders’ demand for nude selfies as collateral reflects China’s patriarchal society

Online lenders’ choice to use nude selfies to enforce repayment reflects the country’s paternal society. Nude selfies are risky enough to prevent female student clients from defaulting because Chinese women are still valued for their chastity.

The concept of “leftover women” best reflects the patriarchal nature of Chinese society. This refers to women whose successful career cost their marriage life. Many of these “leftover women” are shunned because marriage is still a must in Chinese society. As sociologist Sandy To explained, “Highly-educated women in today’s post-reform era still suffer from the same discrimination, as they are passed over for less-educated, less career-orientated women instead.”

China’s patriarchy raises the stake for a woman to lose her chastity before marriage. This means nude selfies are risky enough to serve as debt collateral on P2P lending platforms. Defaulting on loans risks being ostracised by society when a woman’s nude selfies are made public. This explains why majority of nude loan victims are women; nude selfies leaked online in December last year belonged to more than 1,000 women.

Beijing is not solving the problem by banning P2P lending platforms from issuing credit to college students

Beijing recently prohibited P2P lending platforms from issuing loans to college students. College students can only seek credit from certain authorised banks.

P2P lending platforms must also immediately cease business targeting college students. Non-compliance will result in suspension of all platform activities and charges for fraud.

But limiting college students’ credit sources to banks does not resolve the issue of nude loans. China’s college students are willing to take the risk by requesting loan from P2P lending platforms because there is no better alternative. Banks and other traditional financial institutions are not willing to issue credit to college students because they are not “good-quality clients.”

College students’ lacking risk awareness complicates the situation

There is also the issue of lacking risk awareness among college students in the country. Many college students are ready to take risks to acquire fast loans because they have little to offer as collateral.

“Even though some financial institutions are approved to run so-called campus loans, their financial products might not be suitable for university students, whose risk awareness is not strong and whose ability to repay the money is limited,” said Zhao Xijun, a finance professor at Renmin University of China.

Beijing must work to strengthen its feeble student loan system. This is to ensure that college students can access credit from much more credible sources that do not have absurd requests for collateral.

Beijing must start by working closely with its banks to design commercial student loan packages that take into account college students’ financial impotency. Greater direct support from Beijing means local banks in China are more assured to issue student loan packages without running the risk of incurring loss.

There is also much to be done to heighten college students’ risk awareness. China’s personal credit investigation process currently records only financial transactions with traditional financial institutions. Beijing can start by revamping banks’ credit investigation process to give banks access to borrower’s financial transactions with non-traditional financial institutions, particularly online lending platforms. This dissuades college students from taking unnecessary risks when seeking credit sources because doing so would blemish their credit history. This means affecting their ability to seek credit from banks in the future.

Beijing must move beyond denying college students access to credit; that merely delays college students’ search for illegitimate credit sources. Or Xiong Xiaoting may not be the only victim to nude loans.