Consumer lending: A key to greater financial inclusion

The rise of the global middle class is changing emerging markets fuelled by investment into consumption-driven economies. The bulk of this growth comes from Asia, but many people there are still not seeing the benefits of this transformation. According to a recent report by the Asian Development Bank, less than a third of adults in emerging Asian economies have a bank account. A lack of access to transparent lending schemes often means that people have few ways of improving their lifestyle, underpinning inequality and poverty, and ultimately holding back progress. Consumer spending is key for economic development in the emerging markets, and financial inclusion – enabling greater access by the public to the financial system – is an essential part of this trend.

Indeed, consumer finance has become an important part of the global economy. It plays a significant role in driving consumption and raising the standard of living through providing access to credit for individuals both for investment and to overcome difficult times, as well as to help them protect against uncertainty. A consumer’s ability to borrow money easily allows a well-managed economy to function more efficiently and stimulates economic growth. Availability of credit allows households to overcome liquidity constraints and permits consumption to be smoothed over periods of high and low income.

But traditional lending by banks is often inaccessible to many because the individuals lack credit histories, cannot provide a prescribed set of documents, or simply because the amount they wish to borrow is too low and therefore not of interest to the bank. Consumer finance closes this gap.

For nearly 20 years, we have been empowering people with little or no credit history to participate in the economic rise of society by providing them with regulated financial products. Since starting out in the Czech Republic in 1997, Home Credit has become a leading consumer finance provider in some of the world’s fastest-growing and most dynamic markets. Over the years, we have witnessed the positive impact financial inclusion can bring by helping to ignite growth and boost consumption.

Of course, it has not been without challenges. Consumer lending is a fairly new concept in many of the markets where we operate, which often means lack of understanding or even mistrust. For a great deal of people, it is now easier than ever to borrow for a coveted purchase – such as a motorbike to get to work, or a mobile phone to stay in touch with family – but many fail to take advantage of these opportunities. They may find loans unfamiliar and therefore intimidating. Enthusiastic borrowing, on the other hand, can lead to higher levels of debt and even overextension, especially for customers who are not well-versed in personal finance. It is also important to ensure that loan repayments don’t turn into an insurmountable burden. Thus, educating the public about the benefits of consumer lending and the responsibility that comes with it is crucial (read more about Home Credit’s approach to safety in lending in our CEO’s interview with MF Dnes, a leading Czech daily).

For many of our clients, we are their first contact with the regulated financial market, which is a huge responsibility for us. This is why we strive to put simplicity at the core of everything we do. We believe that financial products should be easy to understand for all customers, no matter their level of education, social status or age. Through easy-to-understand lending terms, our clients are empowered to find the best match for their financial needs.

We pride ourselves on helping our customers to be confident in their choices. That’s why we constantly invest in promoting financial literacy with a mix of in-store days, community workshops, media outreach and more innovative – and perhaps slightly unconventional – communications. Here is just one example – take a look at our fun educational cartoons explaining the principles of consumer lending for the Chinese audience.

Increasing financial inclusion and access to consumer finance can drive development, raise standards of living and increase prosperity. And yet, according to US analytics firm FICO, over 500 million people in China alone still don’t have a formal credit history. Bringing them into the regulated financial environment can create tremendous opportunities – for them and for us. Keeping business ethics at the heart of this should remain a priority for all those involved.