CRAs pose risks to P2P lending sites

More and more peer-to-peer (P2P) lending sites have been employing external credit rating agencies (CRAs) to assess the creditworthiness of borrowers' projects. These assessments are crucial for the sites to be able to identify and control risk on behalf of their lenders.

If P2P lending sites didn't assess these risks, they wouldn't have a business because potential lenders would be too afraid to risk their money. The sites also need to avoid listing too many high-risk projects. If too many loans go bad and too many lenders suffer losses, the P2P industry will face a crisis of confidence that could cause many sites to go bankrupt.

However, due to a dearth of talent, the lending sites don't have anywhere near the same capabilities to manage risk as traditional financial institutions. Consequently, they have been bringing in CRAs.

Nonetheless, P2P sites also face the risk that borrowers will conspire with the CRAs to obtain better credit ratings than they deserve, which would destroy the reputations of the sites.

Therefore, P2P lending sites must improve their own risk management capabilities to be able to double check the assessments of the external rating agencies.