5

 6

The following table presents our selected consolidated cash flow data for the years ended December 31, 2016, 2017, 2018, 2019 and 2018.2020.

Non-GAAP Financial Measures

In evaluating our business, we consider and use adjusted net income,income/loss, a non-GAAP measure, as supplemental measure to review and assess our operating performance. The presentation of the non-GAAP financial measure is not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with U.S. GAAP. We define adjusted net incomeincome/loss as net incomeincome/loss excluding share-based compensation expenses.

We present this non-GAAP financial measure because it is used by our management to evaluate our operating performance and formulate business plans. Adjusted net incomeincome/loss enables our management to assess our operating results without considering the impact of share-based compensation expenses. We also believe that the use of this non-GAAP financial measure facilitates investors’ assessment of our operating performance.

This non-GAAP financial measure is not defined under U.S. GAAP and is not presented in accordance with U.S. GAAP. This non-GAAP financial measure has limitations as an analytical tool. One of the key limitations of using adjusted net incomeincome/loss is that they do not reflect all items of income and expense that affect our operations. Share-based compensation expenses have been and may continue to be incurred in our business and are not reflected in the presentation of adjusted net income.income/loss. Further, this non-GAAP financial measure may differ from the non-GAAP financial information used by other companies, including peer companies, and therefore their comparability may be limited.

We compensate for these limitations by reconciling the non-GAAP financial measure to the most directly comparable U.S. GAAP financial measure, which should be considered when evaluating our performance. We encourage you to review our financial information in its entirety and not rely on a single financial measure.

The following table presents our adjusted net income/loss for the years ended December 31, 2016, 2017, 2018, 2019 and 2020.

B.Capitalization and Indebtedness

Not applicable.

C.Reasons for the Offer and Use of Proceeds

Not applicable.

D.Risk Factors

Risks Related to Our Business and Our Industry

We operate in China’s marketplace lending industry, an emerging and evolving industry, which makes it difficult to evaluate our future prospects.

China’s marketplace lending industry is evolving and is in a preliminary stagethe process of development and evolving.tightening its regulations. The PRC regulatory regime governing the industry may change in ways that do not favor development of the industry and this may negatively affect our business. Prospective borrowers and investors may not be familiar with the industry and may have difficulty to distinguish our services from those of our competitors. In addition, borrowers may not view a default of credit obligation under the loans we facilitate as having the same consequences as a default of credit obligation under more traditional loans provided by banks or other financial institutions. Any default on borrowers’ payment obligations may adversely affect investors’institutional funding partners’ confidence in the loans we facilitate, which may lead to a reduction of capital available for loans and materially and adversely affect our business. Our ability to retain and attract investorsinstitutional funding partners is critical to us for maintaining and increasing the volume of loans we facilitate. In addition, our business has grown substantially in recent years; however, ourOur past growth rates may not be indicative of our future growth.

You should consider our business and prospects in light of the risks and challenges we encounter or may encounter in this developing and rapidly evolving industry. These risks and challenges include our ability to, among others:

If China’s marketplace lending industry does not develop as we expect, or if we fail to educate prospective borrowers and investorsinstitutional funding partners about the value of our platform, products and services or address their needs, our reputation, business, financial condition and results of operations may be materially and adversely affected.

If any of our business practices is deemed to violate any laws or regulations governing the marketplace lending industry in China, our business, financial condition and results of operations will be materially and adversely affected.

The relevant laws and regulations about the marketplace lending industry in China has a relatively short history and relevant laws and regulations are tightening, developing and evolving. Since mid-2015, the PRC government and relevant regulatory authorities have issued various laws and regulations governing the marketplace lending industry, which regulate the activities of online lending information intermediaries, online microcredit companies and those who collaborate with these entities in operating marketplace lending platforms. Several laws and regulations issued between 2018 and 2019 have imposed additional requirements and restrictions on the operations of marketplace lending platforms, which have adversely affected and may continue to adversely affect our business and results of operations in the future. See “Item 4. Information on the Company — B. Business Overview —Regulations— Regulation — Regulations on Online Lending Information Intermediaries” and “— Regulations on Microcredit Companies” for more details. There are uncertainties as to the interpretation of these PRC laws and regulations and their applicability to our business. If any aspect of our operations is deemed to have violated these laws or regulations, we may be required to modify or even suspend relevant operations and/or be subject to administrative penalties.

As of the date of this annual report, we have not been subject to any material fines or other penalties under any PRC laws or regulations, including those governing the marketplace lending industry. However, the growth in the popularity of the marketplace lending industry increases the likelihood that the PRC government will seek to further regulate this industry. We are unable to predict with certainty the impact, if any, that future laws or regulations governing the marketplace lending industry will have on our business, financial condition and results of operations.

In addition, recently-issued laws and regulations have imposed additional requirements and restrictions on the operations of marketplace lending platforms, which have adversely affected our business operations in 2018. Our total loan volume decreased from RMB24.6 billion for the three months ended March 31, 2018 to RMB20.0 billion for the three months ended June 30, 2018, to RMB17.0 billion for the three months ended September 30, 2018, and relatively stabled atRMB17.1 billion for the fourth months ended December 31, 2018; our total outstanding balance of loans decreased from RMB22.1 billion as of June 30, 2018 to RMB20.4 billion as of September 30, 2018, and further to RMB19.9 billion as of the fourth months ended December 31, 2018. These regulatory requirements and restrictions may continue to adversely affect our business and results of operations in the future.

If we fail to complete record-filing for our online lending information services and obtain telecommunication service license, we may be forced to terminate our online lending information intermediary business.

The Interim Measures on Administration of Business Activities of Online Lending Information Intermediaries, or the Interim Measures, which was issued in August 2016, introduced a record-filing and licensing regime, which requires online lending information intermediaries to (i) make relevant record-filing with local financial regulatory authorities for their online lending information services; (ii) apply for relevant telecommunication service license after the completion of record-filing with local financial regulatory authorities; and (iii) specify online lending information services in their business scope. In addition, the Notice on the Rectification and Inspection Acceptance of Risk of Online Lending Information Intermediaries, or Circular 57, which was issued in December 2017, further requires online lending information intermediaries to complete their record-filing with the local authorities by the end of June 2018 at the latest. The Notice on Launching Compliance Inspection on Peer-to-Peer Online Lending Information Intermediaries, or the Inspection Notice, requires online lending information intermediaries to complete compliance inspections (including self-inspection, inspection conducted by local and national Internet Finance Association and verification conducted by the rectification office in charge of online lending) by December 2018 pursuant to the Inspection Notice and the Compliance Checklist for Online Lending Information Intermediaries as specified in the Inspection Notice, or the Checklist. Based on the results of the compliance inspections, systems of online lending information intermediaries who are in compliance with the applicable rules and regulations can be integrated to the industry-wide information disclosure systems and product registration systems. Upon completion of such integration, the online lending information intermediaries will be able to submit filing applications for record-filings pursuant to detailed procedures to be issued by the competent regulatory authorities. However, it remains unclear when the detailed procedures for such system integrations and filing applications will be issued. As

In December 2018, the relevant PRC regulatory authorities of the datepeer-to-peer lending industry issued the Circular on Making Efforts to Prevent Risk and Classify Online Lending Institutions, or Circular 175. Circular 175 classifies the online peer-to-peer lending marketplaces into six categories, and except for large- scale peer-to-peer direct lending marketplaces that have not demonstrated any high-risk characteristics, which are generally referred to as Normal Marketplaces, other marketplaces, including shell companies with no substantive operation, small-scale marketplaces, marketplaces with high risks and marketplaces on which investors are not fully repaid or that are otherwise unable to operate their businesses, shall exit the peer-to-peer lending industry or cease operation.

We are also under continual supervision of this annual report, we have submitted a self-inspection report as requested under the Inspection Notice and the Checklist, andlocal competent authority. In October 2018, competent authority of Shangcheng District, Hangzhou, conducted administrative onsite inspections on us in late October 2018, but we have not received any feedback from the competent authority, and there can be no assurance that we will ultimately be successful in passing these inspections.

In addition, we werehave been and may continue to be subject to additional local requirements throughout the inspection process. For example, in December 2018, Hangzhou Internet Finance Association published the Notice on Actively Cooperating with Risk Management Rectification on Online Lending Information Intermediaries of Hangzhou, or the Cooperating Notice. The Cooperation Notice sets forth specific requirements over online lending information intermediaries in Hangzhou, including us, should adhere to, including,which shall, among others, (1) to(i) ensure that their outstanding loan balance and number of borrowers do not increase, and will gradually decrease as requested by competent authorities; and (2) to(ii) gradually reduce the outstanding balance of non-compliant loan products and eliminate such balance before June 2019; and (3)(iii) stop establishing new branches.

The Shenzhen Internet Finance Association published a similar noticestringent regulatory actions on the same day, implying a regulatory trend to restrain the business scale and growth of online lending information intermediaries which in turn may have materially and adversely affect our operational and financial results.

To our knowledge, none of thedecimated online lending information intermediaries in Zhejiang Province,intermediary service, including us, have been permitted to submit filing applicationswell-known listed companies such as of the date of this annual report. It has been reported since April 2019 that the draft ofthe Pilot Work Plan for Conditional Record Filing of Online Lending Information intermediaries, or Pilot Plan, has been finalized. According to the Pilot Plan, the record-filing process will start inYiren Digital (NYSE: YRD) and China Rapid Finance (NYSE: XRF). Since the second half of 2019, several provincial government agencies or internet financing associations had announced their plans to exit online lending information intermediary business in certain pilot cities and provinces, and the record-filing process fortheir jurisdictions, including several provincial government agencies have explicitly announced to clamp down all online lending information intermediary businesses.

Considering the regulatory environment on online lending information intermediaries, we ceased to offer new loans for online investors’ subscription since February 2020, including through our Premier Investment Program and X Investment Program. Investors of our then existing investment programs now directly fund the underlying loans they used to invest in through our investment programs. In May 2020, we announced that we would exit online lending information intermediary business. In the future, we plan to use institutional funding partners as our primary funding sources and will be completed by 2020. The above summariesalso facilitate loans through our microcredit company. However, uncertainties still exist in relation to the interpretation and implementation of regulations relating to online lending information intermediaries, such as the Pilot Plan are based on certain media reports. IfInterim Measures and Circular 175, and there is a risk that regulatory authorities may interpret the Pilot Plan is published,regulations differently than we might be required to (1) stop any new business beforedo, and we complete such compliance inspections or record filing; (2) increase our registered capital to no less than RMB500 million within six months; (3) establish a fully-paid risk reserve fund and risk compensation fund within twelve months; (4) limitcannot assure you that the times of transfer of loans on our platform; and (5) limit the aggregate investment amount of an individual investor to RMB50,000 in order to complete the record-filing. If we were requiredregulatory authorities will not require us to amend our business accordingly, our business, financial condition and results of operation might be materially and adversely affected.

As we have announced to exit online lending information intermediary business and the peer-to-peer industry is faced with full exiting and transformation requirement, we believe that it is no longer applicable for us to submit our filing application, however, considering our historical practice as an online lending information intermediary, there is still a risk that regulatory authorities may interpret the regulations differently than we do.

2020 is a year of comprehensive transformation for the marketplace lending industry and the laws and regulations in relation to the marketplace lending industry are still evolving. We cannot assure you whenare unable to predict with certainty the impact, if any, of future laws or regulations governing the marketplace lending industry will have on our business, financial condition and results of operations.

We have been and may continue to rectify our business to ensure full compliance with laws and regulations governing the marketplace lending industry.

We have rectified, and may need to continue to rectify, certain aspects of our business operations to ensure full compliance with laws and regulations governing the marketplace lending industry, as laws and regulations develop.

For instance, following an onsite inspection in May 2017 of our variable interest entity Weidai Financial Information conducted by the Hangzhou branch of the Office of Leading Group on Special Rectification of Risks in the Internet Finance Sector, or the Hangzhou Rectification Office, and several other regulatory authorities, and an onsite inspection in November 2017 of Weidai Financial Information conducted by the financial service office of Zhejiang province, the Hangzhou Rectification Office issued two rectification notices in August 2017 and December 2017, respectively, to Weidai Financial Information. These rectification notices identified certain issues in Weidai Financial Information’s business operations which were deemed not to be in full compliance with applicable laws and regulations governing online lending information intermediaries, which include, among others, (i) offering loans with interest rates that exceed the statutory limit of 36%; (ii) holding investors’ funds; (iii) conducting offline marketing activities for its loan products; (iv) lack of anti-fraud mechanism; (v) lack of risk assessment and investor management; (vi) lack of periodic audits for key business segments, security evaluation and compliance issues; (vii) insufficient risk disclosure to investors; (viii) insufficient information disclosure; and (ix) conducting misleading advertisements.

We have implemented various measures in response to the above alleged non-compliance, including, (i) discontinuation of loan products with interest rates that exceeded the statutory limit. Since the first half of 2018, we have ceased to offer new loans with APR exceeding 36%, the loan volume of which totaled RMB17.1 billion in 2017 and accounted for 17.7% of our total loan volume in 2017, and loan applications with APRs exceeding 36% will be automatically rejected by our system; (ii) setting up custody accounts with a qualified bank and separating investors’ funds from our own funds; (iii) discontinuation of conducting offline marketing activities for our loan products; (iv) adoption of anti-fraud mechanism; (v) implementation of risk assessment and investor management; (vi) improving periodic audits for key business segments, security evaluation and compliance issues; (vii) improving risk disclosure to investors; (viii) improving information disclosure; and (ix) discontinuation of misleading advertisements. We have completed these rectifications as of the date of this annual report. However, it is uncertain whether our rectification measures will be sufficient to ensure full compliance with the regulatory requirements due to the lack of detailed interpretation and implementation of these requirements. As of the date of this annual report, we have not received final clearance from the local financial authorities that our rectification efforts were sufficient, and there can be no assurance that we will be able to submitreceive such final clearance.

In addition, led by the comprehensive marketplace transformation, we are ordered to exit of peer-to-peer lending industry in July 2020. Since then, Weidai has been cooperating closely with local government in business operation to promote a smooth exit of peer-to-peer investments. As of the date of this annual report, our filing application,organizational structure is stable and once submitted, whether such applicationour daily operation is in order under the supervision of the government authority. Particularly, all loan collection related work is carried out as usual. As of the date of this annual report, we are still under government supervision. Since we worked with local government in July 2020, we have been focusing on loan collection. We stopped repaying investors since July 2020 in accordance with government authority’s instruction. All repayments will be accepted bymade following further instructions from the local financial regulatory authorities or any other competent regulatory authoritiesgovernment. We will resume our loan facilitation business after we have completely exit the peer-to-peer lending industry. We cannot assure how long it will take to complete the exit, and as relevantour business operation is subject to further instruction from the government authority, our further business development may not in the way as we expect.

As the PRC laws and regulations continue to develop and evolve. The delay in completing such record filing has had, and may continue to have, adverse impacts on our business growth. If we fail to complete such compliance inspections or record-filing, we will not be able to obtain the relevant telecommunication service license, in which event we may be forced to terminate ourfor online lending information intermediary business.intermediaries, including their interpretation and implementation, continue to evolve, further regulations regarding the marketplace lending industry may be implemented, which may require us to make further rectifications.

Our business, financial condition and results of operations may be negatively affected as a result of our management having to devote significant time and attention to administrative process, thereby diverting management’s attention from our day-to-day operations.

We were notified by the competent authority that administrative inspections of online lending information intermediaries in Hangzhou have commenced. To assist with the inspection process, the competent authority has set forth certain requirements for all online lending information intermediaries that are subject to such inspections cooperate with, and that the company’s management team must participate in person and onsite throughout the inspection process. Since our chairman cannot travel during this inspection process, we may suffer losses of business that could have a negative impact on our financial condition and results of operations.

Since July 2020, we have been cooperating closely with local government in our business operation to promote a smooth exit of peer-to-peer investments. To cooperate with the exit process, our management team devote their full support to and cooperate with government’s orders, which require their significant time the and attention. There can be no assurance as to how long any of the foregoing or additional requirements will continue to be imposed, or when they will be lifted. Similar or more onerous inspection processes may be imposed at the provincial or national levels. We do not know if and when such further processes may commence, or when they would be completed. Furthermore, there can be no assurance that our company ultimately will be successful in meeting requirements and standards of competent authorities. Each such administrative inspection will cause our management to devote significant time and attention to the inspection process, thereby diverting management’s attention from our day-to-day operations, which could harm our business, financial condition and results of operations.

Increasing restrictions on our custodian bank arrangement may require us to amend our custody account agreement with XiamenXinwang Bank or seek an alternative qualified custodian bank.

We have entered into a custody account arrangement with Sichuan Xinwang Bank Co., Ltd., or Xinwang Bank, the third privately-owned Internet bank in China, in August 2019, after our custodian agreement with Xiamen Bank had expired, under which investors’ and borrowers’ funds are deposited directly into and settled by their designated custody accounts at XiamenXinwang Bank. Circular 57 requires online lending information intermediaries to set up custody accounts at qualified banks that have passed the National Online Lending Rectification Office’s tests and evaluations. According to the website of national Internet Finance Association, XiamenXinwang Bank has passed such tests and evaluations. If XiamenXinwang Bank fails to maintain such status, we may need to seek an alternative custodian bank to satisfy the relevant regulatory requirement, which may delay our rectification progress and record-filing with local financial regulatory authorities. In addition,or in the event that any new laws, regulations or rules impose additional restrictions on our custody account arrangement with XiamenXinwang Bank, we may need to amend our agreement with XiamenXinwang Bank or seek an alternative qualified custodian bank, which may materially and adversely affect our business.

The aggregate amount extended to any borrower through our platform and other online lending information intermediaries may exceed the applicable borrowing limits.

The Interim Measures require that the aggregate amount of loans extended to any individual must not exceed RMB200,000 through a single online lending information intermediary or RMB1 million in aggregate through all online lending information intermediaries in the PRC. Furthermore, the aggregate amount of loans extended to any entity must not exceed RMB1 million through a single online lending information intermediary or RMB5 million in aggregate through all online lending information intermediaries in the PRC.

We, currentlyas an online lending information intermediary, do not facilitate loans to any individual in aggregate amount exceeding RMB200,000 or to any entity in aggregate amount exceeding RMB1 million. In addition, when assessing the creditworthiness of a prospective borrower, we determine whether he has outstanding loans through other marketplace lending platforms using proprietary and third-party databases. However, due to the lack of industry-wide information sharing arrangement, there can be no assurance that the aggregate amount extended to any borrower through our platform and other online lending information intermediaries does not exceed the applicable borrowing limits set out by the Interim Measures.

Our purchase of delinquent loans and provision of guarantees may be prohibited under the Interim Measures and Circular 57. If we are unable to procure alternative means of investor protection in a timely and cost-effective manner, our business and results of operations may be materially and adversely affected.

The Interim Measures prohibit online lending information intermediaries from providing any security interest or guarantee to investors as to the return of loan principal or interest. We have beenused to voluntarily purchasingpurchase delinquent loans from online investors in order to timely compensate them for default losses; we provideprovided guarantees for certain of our consumption loan products (the loan volume of which totaled RMB2.2 billion and RMB2.6 billion (US$0.4 billion) in 2017 and 2018, respectively, accountingproducts. Since 2019, we have ceased to provide financial guarantees to online investors for 2.3% and 3.3% of our total loan volume in 2017 and 2018, respectively).consumption loans pursuant to regulatory requirements. We have ceased to offer consumption loans involving smaller loan amounts and shorter tenures starting from the fourth quarter of 2017; we provide guarantees to a portion of institutional funding partners and corporate investors in case of borrower defaults (the loan volume of which totaled RMB4.0RMB4.8 billion, RMB3.0 billion and RMB4.8 billionRMB298.2 million (US$0.7 billion)45.7 million) in 20172018, 2019 and 2018,2020, respectively, accounting for 4.1%6.1%, 4.9% and 6.1%75.5% of our total loan volume in 20172018, 2019 and 2018,2020, respectively). We ceased to facilitate any new investment made by such corporate investors through our platform or provide guarantee to new corporate investors starting from the fourth quarter of 2017. However, theseFor more information related to cancellation of investment programs, please see “Item 4. Information on the Company — B. Business Overview — Our Investors and Investment Products — Investment Products and Services Offered to Online Investors — Investment Programs.” These historical and current practices may be deemed as providing guarantees to investors as to the return of loan principal or interest, which is prohibited under the Interim Measures and Circular 57.

We are in ongoing discussion with third-party insurance companies, asset management companies and other financial institutions to provide alternative means of investor protection. In June 2018, we entered into a framework agreement with an insurance company to explore cooperation opportunities in this area. In July 2018, we entered into a collaboration agreement with a new institutional funding partner and an insurance company, under which we engaged the insurance company to provide insurance coverage for the institutional funding partner’s default losses. However, if we are unable to procure alternative means of investor protection in a timely and cost-effective manner, investors may reduce their investment on our platform and our business operations may be materially and adversely affected.

The operations of our online microcredit company are exposed to regulatory uncertainties.

We, through Fuzhou Weidai Online Microcredit Co., Ltd, or Fuzhou Online Microcredit, a subsidiary of our variable interest entity incorporated in Fuzhou, Jiangxi Province, offered borrowers advances once their loan applications on our platform were approved and the loans were listed for investors to subscribe to. Borrowers typically took such advances and subsequently used loan proceeds received from investors to repay the advances. We cannot assure you that such historical practice will not be deemed by PRC authorities as “self-financing through our platform”, which is prohibited under the Interim Measures and the Inspection Notice.

Fuzhou Online Microcredit has obtained the establishment approval and business license as an online microcredit company to provide loans up to three times of its registered capital, or RMB600 million, in loans; however,million. However, it has not obtained the operating certificate as of the date of this annual report. Fuzhou Online Microcredit was in the process of applying for the operating certificate when the approval process for all online microcredit companies’ applications for licenses, permits and certificates was suspended as a result of a number of regulations issued by the RPC regulatory authorities in November and December 2017. This industry-wide suspension of regulatory approval was implemented with an aim to strengthen the regulatory compliance of the online microcredit industry, which is relatively new and rapidly developing.

WeAs of the date of this annual report, we have not received any updates from the competent regulatory authorities, and we cannot assure you that Fuzhou Online Microcredit is able to obtain the operating certificate in due course.course or at all. It remains unclear when the regulatory authorities will resume the approval process and whether they will conduct any onsite inspections of Fuzhou Online Microcredit. As advised by CM Law Firm, our PRC counsel, Fuzhou Online Microcredit may continue its current operations (including making advances) before the approval process is resumed. However, in the event that an inspection is conducted by the relevant authorities and Fuzhou Online Microcredit fails to rectify any non-compliance identified during such inspection, its future application for the operating certificate could be denied and its business operations could be suspended. In November 2020, the CBIRC and PBOC published the draft Interim Measures for Online Microcredit Business, or the Draft Online Microcredit Measures, for public comments. The Draft Online Microcredit Measures provide, among others, that an online microcredit company must obtain the CBIRC’s approval before carrying out online microcredit business across different provinces. Under the Draft Online Microcredit Measures, existing online microcredit companies with business across provinces in China will have a three-year transition period to obtain the required approval and adjust their business as necessary to stay compliant. Although there is substantial uncertainties as to the adoption of such draft into law, and the draft, if adopted into law, may differ significantly from the draft as proposed, if the draft, as proposed, is adopted into law, will, among other things, require our microcredit company to obtain the CBIRC’s approval before operating business across different provinces after the three-year transition period. We cannot assure you that we will be able to obtain the CBIRC’s approval in a timely manner, or at all. As of the date of this annual report, Fuzhou Online Microcredit has not been subject to any administrative or other penalties due to the lack of operating certificate. We believe that Fuzhou Online Microcredit is in compliance with the applicable requirements for the issuance of operating certificate, and plan to re-apply for such certificate as soon as the regulatory approval process is resumed.

Fuzhou Online Microcredit has not been, and is not expected to be, our major funding source, and we have acquired a financial leasing company which will allow us to provide funding to borrowers in the form of financial leasing. However, if Fuzhou Online Microcredit is unable to obtain the operating certificate or obtain, maintain or renew any other requisite approvals applicable to its business, we may not be able to provide advances to borrowers through Fuzhou Online Microcredit in the future, and borrower experience on our platform may be adversely affected.

Our X Investment Program may be deemed to violate Circular 57, the Inspection Notice and the Pilot Plan, in which case we may be required to modify our business practice or be subject to fines or other penalties.

Even though Circular 57 permits online lending information intermediaries to provide infrequent loan transfers between investors for liquidity purposes, it expressly prohibits certain transfers, including transfer of loans that will result in the investment period to be inconsistent with the tenures of underlying individual loans. Circular 57 also prohibits online lending information intermediaries from facilitating investors to pledge their creditors’ rights to borrow loans. In addition, pursuant to the Checklist, loan transfers at the end of the investment period may be deemed as splitting the terms of the loans which is prohibited under the Interim Measures, unless the investor has been informed about the liquidity risk and has provided prior written confirmation, and the name of the loan product has indicated that such loan is transferrable after a certain period of time.

The duration of our X Investment Program may be different from the tenures of the underlying individual loans, and we allow online investors that participate in our X Investment Program to transfer the underlying individual loans that have tenures different from the duration of the program to other online investors on our platform at the end of such program. We have informed investors about the liquidity risk associated with our X Investment Program, however, due to the lack of detailed implementations to Circular 57 and the Inspection Notice, we cannot assure you that such practice will be deemed to be in full compliance with Circular 57 and the Inspection Notice. If such practice is deemed to violate Circular 57, the Inspection Notice or other applicable PRC laws or regulations, we may be required to modify our business practice or be subject to fines or other penalties.

In addition, according to the Pilot Plan, a single loan should not be transferred for more than three times during its tenure, and all types of automatic and pre-authorized subscription are prohibited. If the Pilot Plan were officially issued as reported, we may need to make adjustment to our business model, including our offering of X Investment Program, which will materially affect our online investors’ user experience. If this happens, our financial condition and results of operation might be materially and adversely affected.

Some of the loans we facilitate may be deemed as loans with no designated purposes and we may be required to track the actual use of these loans or cease facilitating these loans and our business, financial condition and results of operations may be materially and adversely affected.

The Notice on Regulating and Rectifying “Cash Loan” Business, or Circular 141, prohibits online lending information intermediaries from facilitating loans with no designated purpose. It is unclear whether some of the loans we facilitate, such as professional credit loans and consumption loans, would be deemed as loans with no designated purpose, and if they were, we would need to take necessary measures to track the actual use of these loans, which could cause us to incur substantial additional expenses. If we were unable to effectively implement the foregoing or other rectification measures, we might need to reduce or even cease facilitating these loans, and our business, financial condition and results of operations may be materially and adversely affected.

Our historical practice of deducting interests and fees upfront may be deemed to have violated Circular 141, Circular 56 or the Inspection Notice and we may be subject to fines, penalties or other liabilities.

Circular 141 and the Inspection Notice prohibit online lending information intermediaries from deducting interests, commissions, management fees or margins from investors’ loan disbursements to borrowers. In addition, pursuant to the Notice on Specific Rectification Implementation Measures for Risk of Online Microcredit Businesses of Microcredit Companies, or Circular 56, third-party institutions cooperating with microcredit companies are prohibited from collecting any interests or fees from borrowers. Historically, we deducted service fees payable to us from online investors’ loan disbursements to borrowers. We have ceased such practice since early 2017. From early 2017 to late October 2018, we, through Fuzhou Online Microcredit, offered borrowers advances while their loans were being listed for investors to subscribe to. Borrowers typically took such advances, and subsequently repaid such advances using the loan proceeds received from online investors. Fuzhou Online Microcredit ceased to offer such advances in late October 2018. Historically, Fuzhou Online Microcredit, pursuant to the borrowers’ authorization, deducted relevant fees payable to us directly from the advances. Starting in the first half of 2018, we have implemented a new fee structure for loans facilitated through our platform and stopped deducting relevant fees payable to us from the advances. Under the current fee structure, borrowers receive full amounts of the loan proceeds for loans facilitated through our platform, and pay service fees to us and principal and interest to online investors on a monthly basis, with the first payment due one month from the time of loan disbursement. See “Item 4. Information on the Company — B. Business Overview — Our Borrowers and Loan Products — Loan Products and Services Offered to Borrowers” and “— Our Transaction Process” for more details. However, we cannot assure you that our historical practices will not be deemed by the PRC authorities to have violated Circular 141, Circular 56 or other PRC laws and regulations, in which case we may be subject to fines, penalties or other liabilities.

Our cooperation with institutional funding partners exposes us to regulatory uncertainties faced by those partners, and we may be required to obtain government approval or license due to our cooperating with those partners, which requirement will impose negative impacts on our business and results of operations.

Our cooperation with institutional funding partners (who funded 1.5%4.1%, 5.5% and 4.1%75.4% of our total loan volume in 20172018, 2019 and 2018,2020, respectively) has exposed us to, and may continue to expose us to, regulatory uncertainties faced by such institutional funding partners. We are obligated to compensate a portion of our institutional funding partners for delinquent principal and interest payments in the event of borrower defaults. We cannot assure you that the business operations of our institutional funding partners or our cooperation with these institutional funding partners are, or will continue to be in compliance with the relevant laws and regulations. For instance, Circular 141 requires that financial institutions cooperating with third parties to engage in lending businesses (i) not to outsource any core lending business (including credit assessment and risk control), (ii) not to accept any credit enhancement provided by third parties with no guarantee approval or license, whether or not in a disguised form (including commitment to absorbing default risks), and (iii) to ensure that no interests or fees are collected from borrowers by such third parties. Furthermore, Circular 141 prohibits online lending information intermediaries from facilitating financial institutions’ participation in online lending services. In July 2020, the CBIRC promulgated the Interim Measures for Administration of the Internet Loan by Commercial Banks, which further state that a commercial bank shall not accept credit enhancement services provided directly or in disguised manner by a cooperation institution without qualifications to operate guarantee business or qualifications to operate credit insurance or guarantee insurance business. Our cooperation with institutional funding partners may need to be modified, suspended or terminated, which may be time consuming and lead to insufficient funding supply on our platform and materially or adversely affect our business. We have completed the rectification of our business to ensure that our collaboration with institutional partners is in full compliance with Circular 141, including, among others, to collect service fees from institutional funding partners instead of from borrowers.

Pursuant to the Regulations on the Administration of Financing Guarantee Companies promulgated by the State Council on August 2, 2017, or the Financing Guarantee Rules, entities operating “financing guarantee business” are required to obtain approval from the local regulatory authorities. If any entity operates financing guarantee business without an approval, it may be subject to penalties, including termination or suspension of business, fines ranging from RMB500,000 to RMB1,000,000, confiscation of illegal gains, and if the violation constitutes a criminal offense, criminal liabilities. TheAlthough the Financing Guarantee Rules have indicated that financing guarantee is an activity whereby guarantors provide guarantee for fund borrowing, bond issuance and other debt financing to guaranteed parties, the Financing Guarantee Rules have not defined what constitutes as operating “financing guarantee business”. It is uncertain whether our cooperation with institutional funding partners would be deemed as operating financing guarantee business. As of the date of this annual report, we have not been subject to any fines or other penalties with regard to operating financing guarantee business. However, given the evolving regulatory environment of the financing guarantee business, we cannot assure you that we will not be required by the relevant governmental authorities to obtain approval or license for operating financing guarantee business in the future.

We haveEven though Circular 57 permits online lending information intermediaries to provide infrequent loan transfers between investors for liquidity purposes, it expressly prohibits certain transfers, including transfer of loans that will result in the investment period to be inconsistent with the tenures of underlying individual loans. Circular 57 also prohibits online lending information intermediaries from facilitating investors to pledge their creditors’ rights to borrow loans. In addition, pursuant to the Checklist, loan transfers at the end of the investment period may be deemed as splitting the terms of the loans which is prohibited under the Interim Measures, unless the investor has been informed about the liquidity risk and may continue to rectify our business to ensure full compliance with lawshas provided prior written confirmation, and regulations governing the marketplace lending industry.name of the loan product has indicated that such loan is transferrable after a certain period of time.

We have rectified certain aspectsused to offer X Investment Program to our online investors. The duration of our business operations to ensure full compliance with laws and regulations governingX Investment Program might be different from the marketplace lending industry and may need to do so continuously as laws and regulations develop.

For instance, following an onsite inspection in May 2017 of our variable interest entity Weidai Financial Information conducted by the Hangzhou branchtenures of the Officeunderlying individual loans, and we allowed online investors that participated in our X Investment Program to transfer the underlying individual loans that had tenures different from the duration of Leading Groupthe program to other online investors on Special Rectificationour platform at the end of Riskssuch program. We have voluntarily ceased to offer new X Investment Program to our online investors and have cancelled all existing X Investment Program since February 2020. Our existing X Investment Program investors now directly fund the underlying loans they used to invest in through our X Investment Program. We had informed investors about the Internet Finance Sector, orliquidity risk associated with our X Investment Program, however, due to the Hangzhou Rectification Office,lack of detailed implementations to Circular 57 and several other regulatory authorities, and an onsite inspection in November 2017 of Weidai Financial Information conducted by the financial service office of Zhejiang province, the Hangzhou Rectification Office issued two rectification notices in August 2017 and December 2017, respectively, to Weidai Financial Information. These rectification notices identified certain issues in Weidai Financial Information’s business operations which wereInspection Notice, we cannot assure you that our historical practices will be deemed not to be in full compliance with Circular 57, the Inspection Notice and the Checklist. If such practices is deemed to violate Circular 57, the Inspection Notice or other applicable PRC laws andor regulations, governing online lending information intermediaries, which include, among others, (i) offering loans with interest rates that exceed the statutory limit of 36%; (ii) holding investors’ funds; (iii) conducting offline marketing activities for its loan products; (iv) lack of anti-fraud mechanism; (v) lack of risk assessment and investor management; (vi) lack of periodic audits for key business segments, security evaluation and compliance issues; (vii) insufficient risk disclosurewe may be subject to investors; (viii) insufficient information disclosure; and (ix) conducting misleading advertisements.fines or other penalties.

We have implemented various measures in response to the above alleged non-compliance, including, (i) discontinuation of loan products with interest rates that exceeded the statutory limit. Since the first half of 2018, we have ceased offering new loans with APR exceeding 36%, the loan volume of which totaled RMB17.1 billion (US$1.6 billion) in 2017 and accounted for 17.7% of our total loan volume in 2017, and loan applications with APRs exceeding 36% will be automatically rejected by our system; (ii) setting up custody accounts with a qualified bank and separating investors’ funds from our own funds; (iii) discontinuation of conducting offline marketing activities for our loan products; (iv) adoption of anti-fraud mechanism; (v) implementation of risk assessment and investor management; (vi) improving periodic audits for key business segments, security evaluation and compliance issues; (vii) improving risk disclosure to investors; (viii) improving information disclosure; and (ix) discontinuation of misleading advertisements. We have completed these rectifications as of the date of this annual report. However, it is uncertain whether our rectification measures will be sufficient to ensure full compliance with the regulatory requirements due to the lack of detailed interpretation and implementation of these requirements. As of the date of this annual report, we have not received final clearance from the local financial authorities that our rectification efforts were sufficient, and there can be no assurance that we will be able to receive such final clearance.

In addition, according to the Pilot Plan, the aggregate amount invested by any individual must not exceed RMB200,000 through a single online lending information intermediary or RMB500,000 in aggregate through all online lending information intermediaries in the PRC. Currently, certain number of our online individual investors have investments over RMB200,000. If the Pilot Plan were officially issued as reported, these individual investors may need to withdraw their investments on our platform exceeding the investment limits, which may materially affect our operational results due to insufficient investor commitments. Please see “— If we are unable to retain existing borrowers or investors or attract new ones, or maintain or increase the volume of loans facilitated through our platform in a cost effective manner, our business and results of operations will be adversely affected.” for more information.

As the PRC laws and regulations for online lending information intermediaries, including their interpretation and implementation, continue to evolve, further regulations regarding the marketplace lending industry may be implemented, which may require us to make further rectifications.

If we cannot be classified as normal marketplace in accordance with Circular 175, we will be ordered to exit the marketplace lending industry, which will materially and adversely affect our operational and financial results.

It has been reported since January 2019 that the Head Office for Special Rectification of Peer-to-Peer Online Lending and the Head Office for Special Rectification of Online Finance Risk jointly issuedthe Circular on the Classification and Disposal of Risks of Online Lending Institutions and Risk Prevention, or Circular 175. It has been reported that according to Circular 175, except for large-scale online lending intermediaries that have not demonstrated any high-risk characteristics (which are referred to as normal marketplaces, or Normal Marketplaces), all other marketplaces, including shell companies with no substantive operation, small-scale marketplaces and large-scale marketplaces with high risks, should exit the peer-to-peer lending industry or cease operation. In accordance with Circular 175, marketplaces with high risks include, among others, marketplaces that engage in self-financing or facilitate fraudulent loans, marketplaces with suspicious fund flows, marketplaces whose proportion of overdue loan volume exceed 10% of the overall loan volume on the platform, marketplaces with extensive negative publicity and complaints and marketplaces that refuse to or are reluctant to rectify non-compliant operations. In addition, Normal Marketplaces should cease operating businesses that are not in compliance with the relevant laws and regulations. Circular 175 also encourages certain Normal Marketplaces to convert into other types of online financial institutions such as online microcredit companies. The overarching objective of Circular 175 is to effect orderly exits of non-compliant lending intermediaries without inducing systemic risks or financial turbulence while ensuring the remaining players in the marketplace lending industry to strictly comply with all relevant laws and regulations. See “Item 4. Information on the Company — B. Business Overview — Regulation — Regulations on Online Lending Information Intermediaries.”

The above summaries of Circular 175 are based on certain media reports, including an alleged photocopy of Circular 175 presented in such reports.

Based on our current understanding of Circular 175, by comparing the number of borrowers and the outstanding balance on our marketplace with our competitors, we expect to be categorized as a large-scale marketplace instead of a small-scale one. In addition, as we have successful submitted self-inspection report, we believe we are not a marketplace with high risks as we do not possess any high-risk characteristic stipulated in Circular 175. As a result, we believe that we are a Normal Marketplace. We will continue to implement internal rectification measures to ensure full compliance with laws and regulations. As Circular 175 does not require Normal Marketplaces to exit the industry or imposes minimum restrictions on Normal Marketplaces, we believe that Circular 175, if officially issued, would not have a material adverse impact on our business and operations. We may, however, be encouraged by government authorities to convert into other types of online financial institutions such as microcredit companies orinstitutional funding institutions. If we were to change our type of business, our financial condition and results of operation might be materially and adversely affected. Furthermore, regulatory authorities may have different interpretations of Circular 175. If we are deemed as a marketplace other than a Normal Marketplace under Circular 175 by government authorities, our marketplace would be shut down and our business, financial condition and results of operations would be materially and adversely affected. Circular 175 may also have a material and adverse, or even destructive, effect on the entire marketplace lending industry.

If we are unable to retain existing borrowers or investorspartners or attract new ones, or maintain or increase the volume of loans facilitated through our platform in a cost-effective manner, our business and results of operations will be adversely affected.

Our business involves matchingWe provide intermediary service to borrowers and investors through our platform.with funding needs. The growth and success of our future operations depend on the availability of adequate lending capital to meet borrowers’ demand for loans on our platform. In order to grow our business, we must continuously increase the volume of loans facilitated through our platform by retaining existing and attracting new borrowers and investors.institutional funding partners.

The volume of loans facilitated through our platform may be affected by a number of factors, including our brand recognition and reputation, interest rates offered and service rates charged to borrowers and investors,institutional funding partners, the effectiveness of our risk management, the default rate of borrowers on our platform, the operating efficiency of our platform and the macroeconomic environment. We may not be able to attract a sufficient number of borrowers or investorsinstitutional funding partners or obtain sufficient investor commitments from institutional funding partners, in which case our business and results of operations may be adversely affected.