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Understanding Crowdlending Diffusion and Investor Behaviour in Asia


Originally one of the five categories of crowdfunding, Crowdlending came into its own sometime around 2005 as a popular option for businesses to raise funds – by attracting investors to co-finance ventures through lending money in return for interests.

To better understand the influence of media coverage on the crowdlending industry in Asia and its investors’ behaviour, the Singapore Institute of Technology (SIT) and Crowdo – a regional fintech start-up offering crowdfunding solutions – released a research paper on ‘Crowdlending in Asia: Landscape and Investor Characteristics’ in November 2020.

The research team, comprising Assistant Professors Arif Perdana, Lee Hwee Hoon, Pearpilai Jutasompakorn, and Alex Qiang Chen from SIT and Reona Shimada, Co-Founder and Group CEO, Crowdo, analysed news coverage on crowdlending in Asia spanning a 10-year period from 2009-2019. Key findings were unravelled in three areas: 1) the influence that the media has on crowdlending adoption in Asia, 2) the impact of adopting a non-regulatory approach towards crowdlending adoption versus a regulatory approach, and 3) the tendency of investors to act on impulse or instinct.

These insights could aid authorities in Asian countries in understanding how to better regulate the industry, help crowdlending practitioners resolve potential impediments in crowdlending practices, and provide investors with new perspectives related to these practices.

1. Media Influence on Crowdlending Adoption in Asia

The development of crowdlending in China dominated its media coverage between 2009 to 2014, which helped raise awareness of the platform’s potential. As a result, crowdlending flourished, catalysed by interest rate liberalisation and financial disintermediation – the process of removing middlemen or intermediaries from future transactions.

Despite several crowdlending companies starting to get engaged in fraudulent and criminal activities in the following years, the crowdlending landscape continued to garner media coverage outside of China from 2016 onwards. It received a favourable response and was able to gain momentum outside of China.

From these findings, the research team concluded that similar to the diffusion of other innovations, crowdlending diffusion in Asia was (and still is) influenced by both favourable and unfavourable news. Thus, media coverage is a good source of reference for both the authorities, crowdlending practitioners, and individuals to better understand the crowdlending ecosystems and risks.

2. Impact of a Non-Regulatory Versus Regulatory Approach towards Crowdlending Adoption

Regulators in China took a lenient approach towards crowdlending prior to 2015, which resulted in a flourish in crowdlending companies. However in 2016, there was more media coverage on the fraudulent activities of crowdlending companies in China, featuring government crackdowns, Ponzi schemes, high interest rates, and regulatory clampdowns.

These brought about tightened controls and stricter regulations by the Chinese government, which saw a dwindling in crowdlending companies, mainly those which complied with the regulations. Even until 2019, the crowdlending crisis in China was showing no signs of weakening.

In contrast, Hong Kong adopted a cautious approach towards crowdlending with its regulatory sandbox. Consequently, the crowdlending landscape in Hong Kong has been relatively stable compared to China.

3. Tendency of Investors to Act on Impulse or Instinct

While much research has been done on crowdlending, there is not much research on investor behaviour towards crowdlending. To better understand this, the research team conducted an online survey between February and March 2020, polling 222 crowdlending investors residing in Singapore.

The survey found that the main sources of information that investors rely on are directly from the crowdfunding website or applications. Investment decisions made are subject to many forms of investor bias, which include overconfidence disposition effect (tendency of investors to dispose of investments that have increased in value, while retaining those that have dropped in value), herding behaviour, as well as home bias (also known as familiarity bias).

Investors have been found to act on impulse or instinct, rather than base their decisions on verifiable information. The eight factors that influence their behaviour include loans, borrower, lending platform, perceived benefits, process quality, financial risks, preference of accessing platform, and social relationships and endorsements.

Applied Research Critical to the Survival and Growth of the Crowdlending Industry

“Crowdlending will be the key driver for emerging markets and businesses. By examining what has gone right and wrong so far, as well as identifying key influences and investor behaviour, more can be done to ensure the survival and growth of the crowdlending industry,” said Asst Prof Arif Perdana, Principal Investigator of the research project.

Read the “Crowdlending in Asia: Landscape and Investor Characteristics” Report here.

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