Demand from ‘unbanked’ seen to drive consumer credit growth

The market for small short-term loans—especially for funding the purchase of appliances and other household items—was expected to continue its rapid rate of growth thanks to the growing Philippine economy, the head of a consumer finance firm said Wednesday.

Home Credit Philippines CEO Annica Witschard said a significant part of the population was still beyond the reach of the banking system. This presented a large opportunity for companies to serve the needs of Filipino consumers, she said.

“With a 100-million strong population, the Philippine market has huge potential, and that is why we are rapidly increasing our presence outside the metro,” she said, citing the strong demand for loans from clients who want to skip the lengthy approval process common when applying for credit form banks. “Given what we were able to achieve over the last nine months, we are determined to see even more remarkable results.”

Home Credit Philippines, the local unit of an international financial network that provides small on-the-spot loans for consumer purchases, will expand its footprint further this year to reach beyond its core Metro Manila, Luzon and Cebu markets and tap other areas around the country.

Home Credit currently has 280,000 Filipino clients, of which 180,000 were newly acquired “within the last nine months” via 220 merchants nationwide. These merchants include, among others, appliance stores and mobile phone outlets that offer products popular with the local market.

Witschard’s goal was to grow the company’s client base to 500,000 by the end of 2016.

She acknowledged that while the credit market would always be affected by fluctuations in interest rates and market demand, the overall demand “will always be there” because of the large unserved segment of the Philippine economy.

Company officials said the average loan size availed by the firm’s local borrowers stands at P8,000, with 95 percent of all loans repaid in 10 months. The average interest rate paid by borrowers was between 3 percent and 4 percent a month or a maximum annual borrowing rate of 48 percent, significantly lower than the 120 percent offered to consumers by itinerant lenders.

Witschard said the company was helping local borrowers become more financially literate.

“A huge majority of Filipinos still have little to no access to financial tools and services, which can have a profound impact on how they live and enjoy their lives,” she said. “We want to change that. That is why even first-time borrowers are eligible to apply for Home Credit financing. A loan approval then opens the doors for getting a credit history, and ultimately being included in the financial system.”