* Prospa postpones listing for 48 hours
* Delay follows ASIC queries on Prospa's small business loan terms (Recasts throughout, adds regulator, ombudsman quotes)
By Byron Kaye and Paulina Duran
SYDNEY, June 6 (Reuters) - Small business lender Prospa Group PGL.AX delayed a listing at the eleventh hour on Wednesday after a regulator questioned its loan terms, in a sign scrutiny was increasing across every corner of Australia's scandal-ridden financial sector.
The country's A$100 billion financial services sector has already been roiled by shocking revelations of deception and misconduct in just the first few months of a powerful public inquiry that is set to continue for a full year.
The small-business lending sector came into focus over the past two weeks with the inquiry, or Royal Commission, hearing testimony from several aggrieved small business owners who said they lost their property and livelihoods because of unfair treatment by lenders.
Prospa said it was postponing its float for 48 hours as the Australian Securities and Investments Commission (ASIC) had questioned its "small business loan terms" given the "industry wide review into financial services small business loan term".
The internet-only lender - specialising in quick-approval loans of up to A$250,000 ($191,575) with high interest rates as the loans are unsecured - had planned to sell a quarter of its business in the listing for A$146.5 million. Prospa would have listed with a market value of A$576.3 million.
Its shares were to debut at midday Sydney time (0200 GMT), but Prospa announced the delay 15 minutes before that.
A Prospa spokeswoman declined to comment further.
An ASIC spokesman said the regulator has "been reviewing unfair contract terms and its effect for small businesses, and that has been ongoing for a while". He declined to discuss the specific queries cited by the company.
TRANSPARENCY AND DISCLOSURE
Prospa's prospectus says it lends to small businesses at an average rate of 41 percent a year, several times the typical rate of a secured business loan. The company has not disclosed the maximum or the most common interest rate it charges.
Small business groups have been campaigning for greater protection for borrowers, often individuals, who are not covered by laws to prevent predatory lending to consumers.
"There is definitely a place in the market for fintech lending," said Anne Scott, a principal adviser at the Australian Small Business and Family Enterprise Ombudsman that is reviewing the small business lending sector with ASIC.
"The issue is around making sure there's appropriate transparency and disclosure of contract terms and the cost of the loan ... so the borrower can make the right decision."
She added that online lenders had been asked to report back by June about whether they had complied with a new code of conduct. She declined to comment on Prospa specifically.
Spokespeople for the investment banks managing Prospa's initial public offering, Macquarie Group MQG.AX and UBS UBSG.S , declined to comment on the delay in listing. ($1 = 1.3050 Australian dollars)