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THE CHINA COLUMN: Consumer finance comes to the fore

“I never thought I could afford this new mobile phone. I didn’t have that much money up front. I am very happy that with the help of personal finance, I can buy it now,” says Lisa Qian, a 26-year-old who got her new gadget after securing a personal loan from Bank of China. She will make repayments over the next twelve months.

Although it is a fully-developed concept in Western countries, consumer finance is relatively new to Chinese lenders and consumers. Big-ticket lending in China has developed rapidly over the past decade, especially loans for autos, durable goods and home mortgages.

But it was not until early this year that China’s banking regulators finally approved the plans of three institutions – Bank of China, Bank of Beijing and Bank of Chengdu – to launch the country’s first consumer finance companies. According to The Wall Street Journal, these companies are not allowed to lend for property and auto purchases. They focus instead on helping predominately young and cash-strapped people in need of small loans.

Most recently, Home Credit Group, a Czech company operating mainly in Russia and Eastern Europe, become the first foreign consumer finance lender in China. The firm launched a pilot operation in Tianjing, providing credit to consumers to buy products such as mobile phones, motorcycles and computers. Alexander Labak, chairman and CEO of Home Credit, told the Financial Times that consumer finance is one of the last financial industries in China to start to develop.

But so far the country is doing well in its preparations to introduce and expand consumer finance. By approving Home Credit, a veteran organisation in the sector, China is making sure it has the right people to learn from. And as time goes by, the three pioneering local banks will further build their teams.

Talent shortages probably won’t plague this industry, despite its expansion from an underdeveloped base. The skills needed in consumer finance are transferable from other loan products because the loan structures are similar, except for the shorter repayment period.

Comments (1)

  1. Consumer Finance or consumer lending is driven by the transformation of Chinese economics from export-oriented to domestic consumption oriented for the next decade. The most difficult part in managing consumer lending in China is to properly identify the credit risk of a consumer, by which credit scoring is the most important tool. Although the credit system has been developed in China, yet the actual application of credit scoring is far from being mature. Despite this, I believe strongly that consumer finance will be developing very fast, as has been the case for the credit card industry.

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