Issuing credit to people with no credit history has always been challenging for lenders. The problem gave birth to some innovative solutions.
Consumer loan issuer CashBUS, for example, evaluates the creditworthiness of its customers by checking whom they have called over the past six months.
Interestingly it has modelled its business on the payday lender Wonga. At home, however, the UK firm has fallen foul of the government, the church and the courts for some of its practices, including in 2010 when it threatened debt holders with action from fabricated law firms.
In China non-conventional credit procedures have incurred government wrath as well. Last year a scandal broke that some online lenders had been requiring students to provide nude photos as collateral (see WiC330). The incident prompted the central authorities to ban online lenders from targeting students and many micro-lenders attempted to distance themselves from the affair.
One such lender was Qufenqi, which had specialised in making loans to students. After the scandal (which Qufenqi was not involved in), the company changed its name to Qudian and announced it was shifting its main growth push away from student loans.
TechNode notes that Qudian now describes its core demographic as “young, mobile-active users who need access to small credit… but lack traditional credit data,” adding that approximately 90% of its borrowers are aged between 18 and 35. Chinese tech news site PingWest argues, “This is a kind of roundabout way of saying students.”
If Qudian really did make a major change to its target customers, it only improved its performance.
Revenues surged 514% in 2016 to Rmb1.4 billion ($211 million), generating a profit for the first time of Rmb576.7 million, and last week Qudian had its crowning achievement: going public in New York after raising $900 million, America’s fourth largest new listing this year. During its trading debut Qudian’s shares closed 22% up, having surged by 48% at one point.
The Financial Times reckons a significant factor behind Qudian’s appeal has been its partnership with Ant Financial.
Ant Financial gleans data from its payment system Alipay and its affiliate Alibaba to derive a borrower’s credit score from their purchasing habits. It calls this credit system Sesame Credit (see WiC349). Qudian uses Sesame Credit to perform risk assessment.
However, Christopher Balding at Peking University’s HSBC Business School told the Financial Times that investors are ignoring some of the risks underlying China’s consumer loans.
“Consumer lending cannot continue to grow at the rates it has been growing at,” he says. “If you ever wanted an industry that could encounter problems and face an overnight near cessation of activity, consumer lending is at the top of that watch list.”
Balding’s warnings may have come to mind when trading resumed on Monday: Qudian’s shares fell nearly 20%. Alternatively Caixin Weekly reckoned investors may have “grown doubtful about the business model” after an interview CEO Luo Jun gave over the weekend to a popular blogger who covers fin-tech.
During the interview Luo claimed that if borrowers couldn’t repay their debt, the company “won’t do anything to collect the debt, not even a phone call… we will just give it away as charity.”
This blasé approach raised doubts about Qudian’s surprisingly low bad loan ratio – which stands at 0.15% according to its listing prospectus.
Qudian responded with a press release on Tuesday emphasising that the company will in fact go to the trouble of texting or calling “delinquent” borrowers, and even in some cases paying them a visit.
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