Why Microloan Providers Are More Flexible Than Banks
The process of shaping the microloan market in Kazakhstan isn’t over yet. Industry players are trying to find out the balance of power and explore new directions, so the level of competition is soaring. However, a regular borrower can take advantage of this. The more offers on the market, the cheaper they are. Customers have become smarter and are embracing all the new technologies.
The microloan market in Kazakhstan is regulated by the state through the mechanism of licensing, capital requirements, usury rate, and qualification requirements for microfinance organizations’ (MFO) executives. Now there are many stereotypes and even myths about the market.
Why are those beliefs myths? Because MFOs are really helpful for people, they occupy a niche in the market and provide small- and medium-sized businesses with easy access to financial resources. For example, if you need several hundreds of millions of dollars, you would apply to a consortium of banks. If you need just two million, you would probably take a loan. But if you are a small business and you need a bidding guarantee you would be better off calling off an MFO, which can issue a loan on a pledge of property or even a car. Thanks to MFOs, small entrepreneurs in Kazakhstan currently have access to all kinds of lending.
Myth #1. A microloan is money to live on until the next paycheck
Some people still believe that microloan providers are sort of modern gombeen men, who make a fortune at the expense of regular borrowers because their interest rates are too high. In the past it was true, but no longer. The vast majority of MFOs whether they are pawnshops, loan cooperatives, or online lenders offer niche products, which are often simpler, faster, and more useful than many bank loans. A borrower can use this money for a wide range of purposes. For many entrepreneurs, time is even more precious than money, so the speed of the decision-making process is very important for them. And of course, they know that they need to pay higher interest rates for this speed.
Myth #2. A huge interest rate
When we talk about interest rates we have to choose what is more important for us – time or money. For example, the company ZhetysuAgroKredit cooperates with the government and provides farmers with cheap loans (interest rates about just 4%). However, on the other side of the coin is the time-consuming process of an application review. It may last for up to three months.
For example, if a farmer wants to save money he can apply for a loan to a credit cooperative. Within the application process, he has to prepare a business plan, documents and wait for a response from the lender’s analytics and then from the state agrarian corporation. This process may last up to three months. This is longer than in commercial banks, which they can do in a month.
In contrast, TAS MICROFINANCE, which lends money on the pledge of property can make a deal in just a week. This time is necessary for bail assessment and registration. In case of an emergency, TAS FINANCE GROUP can give a loan in 30 minutes. All you need is a car, which can be registered as a pawn. This is the fastest offer on the market.
Myth #3. Microloans don’t work for business
The simple truth of banking loans is that banks aren’t eager to give money to small businesses, because there is still a lack of negotiable securities and proper accounting in the sector. Therefore many entrepreneurs apply for a fast loan from an MFO and later apply to banks for another loan with a lower interest rate. This is a fair deal.
For example, some people have to buy something and do so very fast, or a firm may need money to cover cash shortage, pay rent or custom fees or pay its employees. In all these cases the faster loan is the better option, even though a borrower has to pay a higher interest rate.
If you are going to take a $50,000 loan on the pledge of a car, your interest rate will be quite high. However, because we recalculate the rate on a daily basis the final cost of money isn’t so high. At the same time, any client can pay back a loan with no fee.
Moreover, we have a special program that we have launched in conjunction with the Damu entrepreneurs support fund with a maximum interest rate of 25%, which is significantly lower than in many banks. People can take this loan on the pledge of a car.
Also, when we take some property as a bailment, we carefully review the credit history of the applicant. This is a common practice for any lender. However, if the bailment is a car, which causes no legal issues we can play more flexibly. I mean, even if this client’s credit history isn’t perfect we can still help him.
In other words, technologies, regulation, demand, and competition in the microloan market make borrowing money and developing business more convenient. On the other hand, fintech helps us to connect international capital markets with small business needs.
