Tech-powered microlenders replace lenders as Thai borrowing rises


(Bloomberg) – Thailand’s household debt has grown to almost the size of its economy of $ 472 billion, but millions of individual borrowers are still struggling to access credit. For technology-driven microfinance companies, this crisis represents a multibillion-dollar opportunity.

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Lenders offer loan approvals via smartphones and artificial intelligence in minutes for amounts as low as 2,000 baht ($ 60) to borrowers with no credit history. This has already triggered a 21% growth in loans from so-called nano-financiers this year, seven times the growth in conventional lending, prompting dozens of start-ups and established players to compete for market share. .

While the current size of the Thai microfinance market is just under 200 billion baht, according to Ngern Tid Lor Pcl, a microfinance lender backed by units of Mitsubishi UFJ Financial Group Inc and CVC Capital Partners. Thailand’s central bank is betting on digital technology and the entry of more players to ease the credit crunch facing millions of borrowers and save them from exorbitant rates charged by loan sharks.

“The loan sharks are now thriving as people with cash flow problems try to scavenge for more money to pay their debts, pay their bills and put food on the table,” said Piyasak Ukritnukun, CEO of Ngen Tid Lor. Microfinance “sees a lot of activity and new players because this segment continues to grow while other segments are stagnant”.

Official debt of Thai households stood at 14.3 trillion baht at the end of June. Add to that a debt estimated at 1,000 billion baht outside official banking channels, it is close to the nominal gross domestic product of the country of 15,700 billion baht.

Siam Commercial Bank, Thailand’s largest lender by market value, is entering microfinance through two units – Monix Co. and SCB Abacus. The companies, which offer nanofinance services through mobile phone apps, are using artificial intelligence and alternative data to target low-income groups and the self-employed.

An estimated 36 million Thais, including 28 million self-employed, do not have access to formal bank loans and credit cards because the majority have no payslips or credit history, survey finds Monix. This segment, which includes street vendors, drivers and housekeepers, often relies on loan sharks, who pay up to 240% annual interest to meet their financial needs.

Songkran Poowongkhao, a 40-year-old woman who works as a nanny in Bangkok, borrowed 50,000 baht from an individual lender at 20% interest per month to support her family after her husband lost his job during the Covid epidemic. She is now unable to pay off the debt and the lender threatens to tell her employer and friends if she doesn’t pay soon.

“I don’t know where to find the money,” Songkran said. “People like us can’t borrow money from banks because we don’t have proof of income. Usurers are the only source we can turn to during crises. “

This is a sore point for the Governor of the Bank of Thailand, Sethaput Suthiwartnarueput, despite the abundant liquidity of the financial system at large. High household debt can hurt private consumption and derail an economic recovery if left unchecked, according to the central bank. Households have lost around 1.8 trillion baht in income due to the pandemic, he estimates.

The pandemic has boosted digital transactions and contactless banking and nano-finance companies are also benefiting from the trend, according to Thiranun Arunwattanakul, COO of Monix.

Yet Thai microfinance growth is constrained by insufficient alternative data, tight controls on loan collections, and an interest rate cap. The interest limit for nanofinance is set at 33% per year, against 36% before the pandemic. This contrasts with some countries like Indonesia which do not impose such limits.

“The interest rate cap also makes it difficult to lend to risky groups,” said Piyasak of Ngen Tid Lor. “Having a cap is like helping loan sharks stay in the dark and reap the benefits of these unbanked groups.”

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