Consumer or household spending is a key driver of economic growth and development; it often accounts for well over half of a country’s GDP. There is even greater potential in developing markets. A well-established, properly-regulated consumer finance market therefore has macroeconomic advantages that benefit a country’s overall economy by smoothing liquidity constraints and sustaining consumption, which in turn boosts output and creates jobs. It also brings microeconomic benefits by helping individuals with little or no credit history gain access to reliable and affordable credit for improving their standard of living and enables companies - such as retailers - grow their businesses.
The role of Home Credit in national economies and society
Source: Home Credit Group Analysis
Consumer finance companies such as Home Credit complement traditional banks by serving unbanked consumers. These are typically people with lower-than-average income and higher risk profiles. The fact that these clients typically have had no interaction with regulated financial institutions does not mean they do not have financial needs. If these needs are not properly catered for, they are excluded from numerous opportunities to participate in their communities and prosper. This is a particularly pressing issue in emerging markets, and this is precisely where a consumer loan is often more appropriate and more accessible than a bank loan.
Home Credit enables these customers to gain their first experience with formal financial services by providing small, fairly priced and clearly explained loans. By design, our strategy incorporates financial literacy education along the way, leading to greater consumer confidence in credit institutions across both the financially included and unbanked segments of the population. At the same time, customers develop personal credit histories, which can be used by local credit registries to fine-tune loan offers from other participants, to provide greater insight into customer habits and needs and to design more targeted government policies.
Accessibility of loans
Source: Home Credit Group Analysis
Consumer finance not only helps to meet individual financial needs, it also promotes entrepreneurship, offering greater choice and opportunity to poor families. The result is greater social mobility and, over time, a levelling-out of some of the more endemic inequalities in income. Goods bought using consumer finance loans do not need to be only for personal consumption; as examples, in China, Home Credit has a special product for financing small vans for rural farmers, and in Vietnam the major part of Home Credit’s loan book is made up of loans for motorbikes. These products are often used by people to run their own businesses.
As for businesses that are already established, local and national retailers alike benefit from partnering with us: our financial services are tailored to their shops and their goods, providing a complex service which, in turn, attracts more customers, increases brand loyalty and facilitates sales of durable goods.
For countries that wish to rebalance their predominantly export- and investment-driven economies into a mixture that includes domestic consumption more prominently, Home Credit’s consumer finance loans provide a fast, easily-accessible private-sector boost to national efforts. As an added benefit, instilling a culture of loan repayment often leads to a higher household savings rate.