China has undertaken an ambitious plan to shut down its scandal-ridden peer-to-peer (P2P) lending sector in two years.

In this two-year time, all existing P2P lending platforms are required to convert into small loan providers.

The move was reported by Reuters citing an official notice issued by China’s Internet Financial Risk Special Rectification Work Leadership Team Office.

All the firms are required to clear outstanding loans in less than one year before starting new business. Companies with more than CNY5bn ($710.3m) in outstanding will have an extended two-year time.

The official notice read that the plan is “an active approach to resolve risks contained in the existing business of online lenders”.

It is also said to help in maintaining social stability and minimising loss of creditors.

Lately, P2P lending has been under focus due to several scandals, triggering stringent government crackdown.

Several companies, including Ping An Insurance-backed Lufax, announced plans to scale down its P2P lending operations.

All P2P firms seeking to transform need to maintain a minimum of CNY50m to become a regional small loan company. A small loan service provider must maintain at least CNY1bn to operate across the nation, the official notice added.

Risky companies and firms with fraudulent platforms will be barred from converting their business.

According to the latest data from China Banking and Insurance Regulatory Commission (CBIRC), the country had 427 P2P firms at the end of October.