Internet-based loan services have boomed in just the past two years, but the regulatory system has yet to catch up, reports Ed Zhang.

In China's business world, many like to borrow a phrase from Charles Dickens: "It was the best of times, it was the worst of times."

That description certainly applies to the fast-growing online financial industry. Two years ago, few people thought to borrow via the Internet－but there has been a dramatic change. As of Feb 28, outstanding Internet-based loans totaled 160 billion yuan ($26.1 billion), according to PPmoney.com, a Guangzhou-based online wealth management platform.

But every few days, it seems, an online lender collapses, leaving creditors losing out on the promised returns－and perhaps their life savings.

Many commentators in the Chinese business press agree that 2015 will be a time for "reshuffling the cards", to the expression used in a recent article in the China Securities News.

Internet-based lending is also called peer-to-peer lending, a process that reduces the role of the middleman in the credit market. Websites that facilitate such business are called P2P platforms.

Law enforcement departments are having a hard time determining what charges can be brought against platform operators who have allegedly defrauded creditors of their capital. The legal and regulatory framework that governs the financial sector does not apply to P2P operations.

But it also seems that officials are pursuing a policy of benign neglect. P2P lending is an integral part of the booming Internet-based financial services industry, which the government hopes will help power the country's next stage of growth.

There is certainly an innovative aspect to P2P financing. The ease of transactions can be a boon to small enterprises and self-employed individuals and make the economy more dynamic. Too much regulation, too soon, before officials fully understand the emerging industry, may stifle the industry's progress.

Still, the market is becoming more chaotic. This may be the cost, as one Hong Kong-based fund manager said, for a nation of savers to pay for a change in society's financial habits.

Of course, some rules are needed. Look back just one year, when Liu Zhangjun, an official from the intra-ministerial meeting on the control of illegal fundraising, an organization under the State Council (cabinet), said that all P2P services should meet at least four basic requirements.

They should:

?limit their role to one of intermediary between the creditor and the debtor.

?not guarantee any loan arranged through their platform.

?not build up their own capital reserves.

?not raise funds from the public, which is against the law for organizations or individuals that lack specific authorization to do so.

But these are just official principles, still to be reflected in laws and regulations. Enacting laws and drafting regulations require different bureaucracies to work together, and that can be time-consuming.

The absence of regulation has led the business astray, financial service specialists said.