Qudian, which claims to be the largest online micro-lending company in China, has been viewed as the “most controversial” Chinese company listed in the United States by far, despite landing the country’s fourth-largest IPO of 2017.
There is an increasing purchasing demand from China’s young generation, yet college students often have difficulty securing lines of credit from banks. Thus, companies offering student micro-loans, Qudian among them, rocketed to popularity.
Established in 2014 and initially operating under the name of “Qufenqi”, the company started from offering small loans to college students. At the peak of the student micro-loan trend in 2015, Qufengqi received substantial investment from Ant Financial, a finance-oriented affiliate of Chinese e-commerce giant Alibaba.
Notwithstanding the early successes in the industry, a series of tragedies related to campus loans have been recently and widely reported. Some students who took out loans ultimately couldn’t stand the high interest rates and committed suicide after allegedly being threatened by the lending companies. Reportedly, some female students were even asked to submit naked photos or videos as a form of IOU compensation.
In light of the controversies, Qudian claims to have withdrawn from the student loan market, after Chinese authorities suspended online micro-lending platfroms from dispensing loans on campus. Instead, the company now “targets hundreds of millions of young, mobile-active consumers in China who need access to small credit for their discretionary spending, but are underserved by traditional financial institutions due to lack of traditional credit data and operational inefficiencies of traditional financial institutions”, according to Qudian’s official introduction on its website.
The company handled USD 5.6 billion in transactions for seven million active borrowers in the first half of 2017. Within three years, Qudian attracted at least RMB 5.1 billion (USD 0.79 billion) of investment in six rounds of fundraising, and its shares priced at USD 24 in the USD-900-million IPO in NYSE last October, marking it as the largest IPO by a Chinese company in the US last year.
However, articles questioning its business sustainability, validity, and morality were widely posted online once Qudian got listed. Luo’s response to the criticism made the company’s reputation even worse.
Asked whether Qudian had coerced users to borrow from others if they failed to pay back the loans, CEO Luo Min said the company would do nothing to overdue users. “If you can’t pay, we will just give it as welfare.” The comment was seen by many as a bold-faced lie.
Luo also claimed the company has a low bad-debt ratio thanks to the company’s recently equipped AI risk-control system. Furthermore, some consider Qudian vulnerable given that all of its lending information is controlled by Ant Finance, a giant financial organization. This is especially true for its risk-control methods. Some potential overseas customers are weary about the security of their sensitive personal financial information.
Some articles questioned whether the company is still running its campus loans business. “Once we discover a user is a college student, we will not issue loans to them,” Luo said when asked how they clarify users’ identity and credit worthiness.
None of Luo’s responses to the many concerns that plague Qudian have satisfied the public. The reputation crisis and clamping down by Chinese authorities on online micro-lending has led the company’s stock prices to drop sharply.
Qudian’s closing price during its debut trade was USD 29, but three months later, on January 19, the price had slumped to just USD 12.40. At this time, the company’s total value had fallen to about USD 4 billion, only a third of its highest total value of USD 11.7 billion on the second trading day.
On January 14, a day before the company announced its new business initiative in budget auto financing, Luo broke a two-month-silence, admitting that he made “mistakes” by not speaking out publicly.
Posting on WeChat, he said: “As CEO of a listed company, I was very reluctant to communicate with the outside world. This was a mistake I made in terms of judgement.”
Although Luo sounds quite modest in his recent responses, the public has yet to be satisfied given that the CEO hasn’t well addressed the business-level issues facing his company. Qudian’s reputation crisis persists, meanwhile its stock prices continue to plummet.
(Top photo from Diankeji.com)