We believe that Yirendai is making a step in the right direction with their reserve fund. The average investor is China is unsophisticated when it comes to investing and does not have a firm grasp on the concept of risk/reward. Culturally, most investors seek high returns that are guaranteed (reward without the risk), so the P2P industry model was originally based on guaranteed loans. They would originate a high interest rate loan, offer a much lower percentage to the investor guaranteed, and make money on the spread. However, this form of "credit enhancement" created perverse incentives for the platforms to continue to originate riskier loans to capture higher spreads. Yirendai used a guarantee model from August 2013 to December 2014 then switched to a much more palatable reserve fund.