Home Credit China wins licence to extend business on the mainland
Home Credit China, a unit of the European financial firm PPF Group, expects business to mushroom over the next two to three years after receiving a licence to tap into the previously legally grey area.
After providing small credit loans to household appliance buyers for three years in Guangdong, the company acquired a licence earlier this year from China's banking regulator to conduct a non-collateralised consumer credit business.
China has been encouraging the establishment of such companies since the beginning of this year as part of the effort to stimulate domestic demand after the export sector was hit by the financial meltdown.
The China Banking Regulatory Commission has given approval for Bank of China, Bank of Beijing and Bank of Chengdu to set up consumer finance companies in Shanghai, Beijing and Chengdu in a pilot scheme.
Under the same programme, Home Credit Consumer Finance will be launched in Tianjin tomorrow, the first such company fully owned by foreign investors. The licence is currently restricted to serving the Tianjin area. If the experiment is successful, it is possible the company will merge existing businesses in 25 cities.
Alexander Labak, chairman and chief executive officer of the Netherlands-based company, regarded the licence as a 'reward' for the foreign player's contribution in educating clients as a market pioneer.
'We are at the early phase of client education,' said Labak, listing China's unique problems, including migrant workers who are hard to follow and people who need frequent reminders to make repayments.
The company acquires clients at points of sale. A client who enters a store to buy a 2,000 yuan (HK$2,325) mobile phone but without enough cash is a potential customer. After providing his identity card and bank card information, the credit, averaging about 1,800 yuan and due in less than one year, is usually approved in 20 minutes.
After the loan is repaid, clients are approached for 'cross-selling' for higher-priced products, said Labak.
Despite the difficulties in getting loans repaid on time, the 'risk cost' is below 5 per cent currently, an acceptable level and no higher than elsewhere, said Labak.
Not allowed to take deposits or use offshore money, the company has teamed up with the China Development Bank and China Foreign Economy and Trade Trust to receive 'operational and funding co-operation' from the government-backed financial institutions.
'Now we are a market leader on the mainland. In the next few years, we will see strong local players.'
Home Credit's newly underwritten loans in the first 10 months of this year surged 300 per cent from a year earlier to a combined 776 million yuan in 440,000 transactions.
Labak expects Home Credit to break even next year and over the next two to three years to produce 10 million loans annually.
Quick money
The number of minutes it usually takes to approve a Home Credit loan to a customer buying goods in a shop is: 20
