Tech-fuelled microlenders replace loan sharks

Target market: A worker weaves on a traditional machine in Narathiwat. An estimated 36 million Thais, including 28 million self-employed workers, have no access to formal bank loans and credit cards. — AFP

BANGKOK: Thailand’s household debt has spiralled to almost equal the size of its US$472bil (RM1.96 trillion) economy, yet millions of individual borrowers still struggle to access credit. For tech-driven microfinance companies, that crunch represents a multi-billion dollar opportunity.

Lenders are offering loan approvals via smartphones and artificial intelligence within minutes for amounts as low as 2,000 baht (US$60 or RM248.69) to borrowers with no credit history.

That’s already sparked a 21% growth in the loans extended by the so-called nano-financiers this year, seven times the growth in conventional loans, prompting dozens of startups and established players to vie for a slice of the market.

While the current size of the Thai microfinance market is just under 200 billion baht (RM24.87bil), an estimated one trillion baht (RM124.34bil) of unofficial household debt is sweetening the pot for companies entering the sector, 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 faced by millions of borrowers and save them from the exorbitant rates charged by loan sharks.

“Loan sharks are flourishing now as people with liquidity problems try to seek more money to pay debts, pay bills and put food on the table,” said Piyasak Ukritnukun, managing director of Ngen Tid Lor.

Microfinance “is seeing a lot of activities and new players because this segment continues to grow while other segments are stagnant.”

Thailand’s official household debt stood at 14.3 trillion baht (RM1.78 trillion) at the end of June. Add to it an estimated one trillion baht (RM124.34bil) of debt outside the official banking channels, it’s close to the country’s nominal gross domestic product of 15.7 trillion baht (RM1.95 trillion).

Siam Commercial Bank, Thailand’s biggest lender by market value, is pushing into microfinance through two units – Monix Co and SCB Abacus. The companies, offering nano finance service via mobile phone applications, use artificial intelligence and alternative data to target low-income and self-employed groups.

An estimated 36 million Thais, including 28 million self-employed workers, have no access to formal bank loans and credit cards as the majority have no salary slips or credit history, according to a Monix survey.

This segment, including street vendors, drivers and maids, often relies on loan sharks, paying annual interest as high as 240% to meet their finance requirements. — Bloomberg

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household debt , Thailand , credit


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