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Alibaba’s empire expands into finance industry

Lending ambitions: Jack Ma

While the Democratic National Convention grabbed most of the headlines earlier this month, there was another convention going on in Hangzhou also making the front pages.

Hosted by Alibaba Group, Alifest is an annual event at which thousands of businessmen and hobby traders gather to listen to the latest words of wisdom from company founder Jack Ma.

Ma, who enjoys something approaching rockstar status in the country, told Alifest that his Taobao e-commerce sites will surpass Amazon and eBay combined in sales terms this year. Taobao is now aiming for Rmb3 trillion ($473 billion) in annual transaction value over the next five years (Amazon recorded net sales of $26 billion in the first half of this year).

But Ma has even loftier goals. After becoming a pioneer in China’s e-commerce market, he now wants to shake up the financial world.

Also at Alifest, Ma said that Alibaba will continue to act as a micro-financing platform to support e-commerce entrepreneurs. What he means is that Ali-loan, the financing subsidiary of e-commerce giant Alibaba, is going to do more to help small businesses obtain credit.

Wang Teng, the chief executive of Ali-loan, told First Financial Daily recently that the financing platform will extend loans to all of its membership in the provinces of Zhejiang and Jiangsu, as well as the municipality of Shanghai. In the past, only Alibaba’s paying members (who have been through a more stringent application process) have been able to access loans.

Let’s backtrack a little. Ali-loan has now extended credit totalling Rmb28 billion since its launch two years ago. But the money has been distributed via 1.7 million small loans, equating to 10,000 loans a day. According to Ma, Ali-loan has backed over 15,000 enterprises at an average of Rmb47,000 ($7,400) per loan. Of course, this comes at a time when the traditional banks have been criticised for failing to lend to smaller enterprises. “The banks should support small and medium-sized businesses, but for whatever reason they can’t seem to do that,” Ma joked to his audiences at Alifest.

The way Ali-loan operates is that members can apply for a loan without collateral or guarantees. As Alibaba already has online sales and transaction data for the loan applicants through the various websites that it controls, the company believes it can assess credit risk quickly and accurately. According to 21CN Business Herald, approvals for an Ali-loan take three minutes on average. The average bank manager is going to take at least a week or two to decide – and even then it could well be a ‘no’.

The loan itself comes from two small lenders that Alibaba set up in 2010 and 2011, respectively. One is co-invested by Fosun, a Shanghai conglomerate, with 21CN stating that they have a lending capacity of Rmb1.6 billion. The loans can be for up to 12 months, but often they are of a much shorter duration, meaning Ali-loan can lend out its stock of cash multiples times each year.

Company executives also say that their access to detailed credit data explains why the proportion of Ali-loan’s existing lending that it reports as going bad is low for a higher risk sector like SMEs, at 0.71%.

The company, which gives loans to vendors trading on its e-commerce websites ­Alibaba.com, Taobao.com and Tmall.com, now says it hopes to provide the service to 1 million small enterprises by 2014, or about 2% of the sector. To do that, it’s also looking for access to further funds, probably via a new banking partner.

In addition to helping small businesses get loans, Ma has also been talking about selling insurance to the millions of visitors to his sites. Along with fellow internet giant Tencent, Alibaba has announced that it will be partnering with insurance firm Ping An to launch a new venture online.

The project has been getting a publicity boost as it brings together three of China’s most prominent business leaders, all sharing the same last name: in addition to Jack Ma, there is Pony Ma of Tencent, and Ping An’s Ma Mingzhe. In a news conference this month Ma Mingzhe announced that the venture will sell insurance across the online game and e-commerce platforms of his two partners.


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