Robocash Group studied the environment of South and Southeast Asia in terms of risks for micro consumer lending. Embracing strategic, operating, and financial factors, the research shows that a high risky background does not necessarily stand for extreme difficulty for the business. What is more, it suggests broader prospects for players able to cope with such factors. India turned out to provide an overall reasonable risk environment for the industry.
The higher the economic development of a country is, the lower the risks for banking activities are. However, other aspects come to the fore in case of alternative lending. It usually serves clients with limited access to banking products and potentially lower financial discipline. Besides, ASEAN fintech companies are worried about three main areas: market, technological, and regulatory risks. They include competition within the industry, as well as with banks, then changes in regulation and preferences of customers. Besides, there are operating, financial, and credit risks. The comparison of countries in Southeast and South Asia allows ranking them according to risks for non-bank micro consumer lending.
To start with, Malaysia, Brunei and Singapore shared the first three places (from the third to the first, respectively) in the ranking as they provide the least uncertainties for the industry. However, they cannot offer any promising prospects either. Strong banking and low customer base determine the financial industry. In contrast, Myanmar, Cambodia and the Philippines took the lowest positions in the ranking: from 13 to 11, respectively. They have the riskiest background for alternative lending. The main points are the high market competition, potential regulatory updates and low financial discipline among customers. Still, it does not mean an extreme complexity of the business. In this sense, the higher the risks, the better the returns for players ready to cope with such circumstances.
Overall, the reasonable risk for micro consumer lending is in India (10). Traditional banking institutions are still not ready to work with customers with poor or absent credit history or living in rural areas. In return, it provides extensive opportunities for fintechs. Therefore, the most uncertainties come from regulation and competition. In India, they even create a constraint environment, which facilitates mergers and acquisitions. There Sri Lanka (9) follows with rather similar risk and prospects ratio. The next is Thailand (8) with well-built regulation of the industry. However, with the increasing significance of banking and progressing GDP, alternative lending may lose the interest of customers. To be aware of changes, local players should monitor the situation closely. In contrast, Laos (7) and Vietnam (6) still develop their financial systems. It creates both difficulties and opportunities for business. However, the latter seems less risky due to the more advanced economic institutions.
Finally, even though they do not provide the lowest risks for the industry because of high competition on the market, Bangladesh and Indonesia offer the most favourable environment in terms of risk and prospects. Bangladesh (5) is an emerging country with one of the lowest economic development in the region. Still, it has a rich history of microfinance companies and a developed alternative lending market. The main reason to worry about is credit risks. Dynamically developing and promising Indonesia (4) stands out in the mentioned background. It has a diverse online lending segment attracting more and more players, including foreign ones. To control the growth, the Financial Services Authority (OJK) has introduced the licensing of players. At the same time, the market continues to change. For instance, Sharia-compliant financing is also gaining momentum and already affects the segment.
