Asian Indiser – Covid-19 credit crunch: Households and small businesses in Asia struggle to get loans

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BALI, June 18 (The Straits Times/ANN): At Mimpi Bungalows, two years of confinement have taken their toll. A termite infestation has partially collapsed the ceiling of a cabin.

Located a three-minute walk from the beach, many huts have had their locks rusted by the corrosive sea air. The pool, now emerald green, is home to dozens of catfish to control the mosquito population.

Made Supatra Karang, whose family opened the property’s first bedroom to tourists in 1980, said refurbishing the entire property would cost one billion rupees (S$93,600) in repairs.

Supatra, who has helped promote Bali as a surfing destination in competitions from Australia to Brazil since he was a teenager in the 1960s, said banks wouldn’t lend to him because he didn’t make a profit For years.

The 68-year-old is considering selling and retiring.

“I’m not poor. I have assets,” he told the Straits Times. “If the bank came here and took a look, they would refuse.”

Across Asia, millions of households and small businesses, including hotels, restaurants and farms, and other businesses are struggling to pick up the pieces after years of lockdowns and travel restrictions that have plagued them. left with little or no income.

Tens of millions are struggling to get credit to cover repairs, inventory and, increasingly, the cost of food and energy amid rising inflation and rising labor costs .

Last year, the Asian Development Bank said as many as 80 million people across Asia had fallen into “extreme poverty”, earning no more than the equivalent of US$1.90 (2 .60 USD) per day. The most vulnerable, including women and unskilled workers, have suffered the most.

Following sudden and prolonged shutdowns in India, for example, the already low participation of women in the labor market fell by more than one percentage point to less than 19%.

By comparison, half of working-age women worldwide are in paid employment, according to the International Labor Organization.

“The lockdown was so sudden and for so long that people not only lost their livelihoods but most or all of their savings,” said Aditi Anand, national coordinator of India’s anti-poverty group. Wada Na Todo Abhiyan.

“Women, in particular, have not only lost their jobs and their livelihoods. They have in fact been completely excluded from the labor force.”

Certainly, banks are increasing their lending to finance the rapid economic recovery in countries like Indonesia, Malaysia and India.

The most recent data on outstanding loans in Indonesia shows that credit availability jumped 6.6% to almost 5.9 trillion rupees in March from a year earlier, driven by loans to industries and household consumption.

But increasingly, it’s the little guy who’s been left behind as lenders, burned by the 2008 global financial crisis, limit credit to their safest and biggest borrowers.

International banking protocols like the Basel III accord require lenders to regularly assess whether they have enough capital to withstand financial shocks – a process known in the banking industry as stress testing.

“The stress test requirement means that loans are directed to less risky customers,” said Professor Sumit Agarwal, an economist at the National University of Singapore.

A shopkeeper waits for customers at a market in Seminyak, Bali, Indonesia. -Bloomberg

Watch out for the gap

A study published by the French business school Insead in the first months of the pandemic in 2020 said that more than two-fifths of micro and small businesses officially established in Southeast Asia could not obtain adequate business loans, which which represents a financing gap of 300 USD. billion. In Indonesia alone, the funding gap is US$165 billion, according to the country’s financial regulator.

And the gap is widening.

A similar 2017 study by the World Bank reported that the financing gap for micro-enterprises – typically owned by individuals with incomes below USD 50,000 – was USD 500 million across the country. South East Asia. Market watchers say the deficit has only grown throughout the pandemic.

Ding Hong Sing, president of the Malaysian SME Association, said while more established companies have started borrowing, micro-enterprises like restaurants are struggling to get working capital to cover the higher cost. inputs such as food and labor.

Malaysia is facing a labor shortage of one million foreign workers after many were forced to return home during the pandemic.

“Micro enterprises face a cash flow problem,” Ding told ST. “Food is more expensive and they can’t find workers.”

A vendor waits for customers on a street in Jakarta.  -AFPA vendor waits for customers on a street in Jakarta. -AFP

fintech

But as the banks pull back, online start-ups specializing in small business lending are increasingly stepping in.

Singapore-based finance companies, which claim to be the biggest fintech lender, now have $2.4 billion in loans outstanding in Singapore, Indonesia, Malaysia, Thailand and Vietnam.

Unlike most banks that look for years of profitability before extending credit, fintech lenders like finance companies assess borrowers based on a track record as short as a few months – and usually based on accounts. accounts receivable and other future revenue indicators.

With no bricks-and-mortar branches to support, the business model is more nimble, allowing it to provide loans ranging from a few hundred dollars to US$2 million for up to a year – a small beer for most banks. .

This flexibility comes at a cost. At interest rates of up to 2% per month – a rate similar to some credit cards or payday loans – the business model is too expensive for all but the most secure SMBs, those with large prime customers. order or government, critics say.

“We’re just one player trying to fill the funding gap,” Funding Societies co-founder and chief growth officer Iwan Kurniawan told ST. “We provide the fuel SMEs need to grow.”

Other borrowing methods are experiencing a surge in demand after years of inactivity.

Credit unions in Indonesia, where communities band together to pool their savings and provide loans to small businesses like family farms, have seen a boom in demand for credit. Since December 2019, outstanding loans have increased by two-thirds to reach 250 trillion rupees at the end of last year, based on the most recent government data.

Membership also jumped to 27 million from 22 million during the same period. Co-op representatives say borrowers have been granted extensions or interest-only payment options during the pandemic.

“We restructured loans and offered trainings like how to sell on Tokopedia,” said Mr. Dewa Gede Widnyana, who heads Bali-based Koperasi Serba Usaha Dana Kita, a savings and credit cooperative with over 1,300 members. members. E-commerce site Tokopedia merged last year with ride-hailing company GoJek to form GoTo.

“During the pandemic, people delayed payments. But now businesses are reopening and our assets are growing.”

But credit unions are niche and archaic. The value of outstanding loans in Indonesia is one-thirtieth of the volume granted by banks. Business processes are almost entirely paper-based.

It is slowly changing. Tech start-ups like Bali-based Djoin are raising funds in a bid to bring the country’s credit unions into the 21st century. Djoin said he has raised more than $1 million in hopes of digitizing 100 of Bali’s roughly 3,000 credit unions by the end of the year.

Members could transfer and repay loans on their mobile phones, combining banking efficiency with the human touch of credit unions, Willy Sanjaya, co-founder of Djoin, told ST.

To be sure, there is a long way to go. Indonesia has 127,000 credit unions. Despite this, almost three-quarters of its micro and small businesses say they cannot get credit from banks and other lending institutions, according to government data.

“The social impact of cooperatives is fantastic, but there are bottlenecks in their processes,” Sanjaya said.

“We want to be a bridge between cooperatives and what customers want in a bank today.” – The Straits Times/ANN

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