The economic shock of the COVID-19 pandemic is having a fundamental impact on Latin America’s lending and leasing fintechs
The ramifications of coronavirus on Latin American economies may just be starting – but digital lenders are already immersed in the new reality. One one hand, they say demand has surged for loans. On the other hand, they are already rolling out measures to confront a potential downturn in credit quality.
One Mexican fintech that lends to individuals says the number of loan requests doubled in a week as covid-19 concerns took hold.
Although Mexico only introduced a social distancing policy on March 28, experts were already forecasting that the economy would be hard-hit by the global pandemic.
“In spite of that, we are working very closely with our clients to offer them alternatives,” said the company’s CEO. “We aim to understand each client’s situation.”
The company has introduced, for example, an option for borrowers to halt payments on their loan for 30 days without penalty.
Another Mexican fintech that has launched a user-friendly strategy is Bien para Bien. Víctor Manuel Borrás, CEO, says they have fast-tracked a new product that was already in development, as a result of the new environment.
“We’ve launched a new program for sales promoters for Bien Para Bien,” said Borras.
“It allows people to earn money from home, giving them the opportunity to sell Bien para Bien loans.”
Currently, the company has more than 2,000 promoters. That figure beat the company’s own forecasts, and it now expects to reach its goal of having 10,000 promoters withing 6 weeks.
Bien para Bien has also received more loan applications than usual, with applications up 20% to 30% on February.
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Non-performance rates unclear
While the growth in demand for loans might be positive, digital lenders are walking a delicate line. The two Mexican fintech CEOs agree that repayments could be a problem.
“There are a ton of applications from people looking for loans, and so to mitigate our risk we’ve had to tighten our credit policy, since the local economy could be affected,” said the CEO of the first fintech.
For Bien para Bien, the situation is similar. As a result, it is more important now than ever to properly assess the risk of each client to offer the correct product, said Borras.
“It’s fundamental that we’re able to correctly assess each client and that we offer them what they need – the structure that they need – and that way we’ll get through these three or four months while we have this problem,” he said.
In certain cases, one solution is to lengthen the tenor of the loan.
“Normally we offer five-year loans, but in terms of the structure that we could offer to clients, it could be that in some cases we go longer than that. It’ll be for some clients, not in general,” said Borras.
Uncertainty over repayments is likely to also impact other sectors such as crowdfunding and peer-to-peer lending. RedCapital, a Chilean fintech that facilitates crowdfunding for PYMEs, expects a similar issue.
“There are a lot of investors that invest through our platform to finance SMEs. For those investors to continue using our platform, it’s important that the repayment rate remains strong. Today, loans that are more than 6 months in default is less than 1%, and we want to keep that rate in the future,” said Gustavo Anania, CEO of RedCapital.
For RedCapital, which operates in Chile and Pere, another challenge is to identify new clients that will be able to repay their loans.
“There are a lot of variables that make us think that the situation will continue to be complicated over the next three months at least, and the economy is going to be a bit slower, but these are external factors,” says Anania.
“The Peruvian and Chilean economies are fundamentally healthy, so as soon as the crisis is over, I’m sure they’ll be up and running again quickly – and we have to be there to help those SMEs when they want to restart or quickly grow their sales.”
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Leasing demand – and risks – also growing
A big challenge amid the Covid-19 pandemic is to strengthen digital channels to satisfy a surge in demand, says Jaime Montenegro, leader of IT and e-Commerce at the Lima Chamber of Commerce.
Most fintech offerings are well-suited to this. Leasing is one such example. Remote working – as part of social distancing – has given office equipment leasing a big push in recent weeks.
In Brazil, one company reports leasing 4,000 laptops to more than 60 companies: That’s what it would normally lease out in a whole month.
An immediate problem for these companies is to keep up with demand. In the case of PuntoComRent, a Peruvian fintech that rents and leases laptops, it has responded by “aggressively investing in more technology – UX programs, bots and other tools for companies to use for remote workers,” says Carlo Mario Dioses, the company’s co-founder.
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However, there’s a risk that the leasing sector could also face delinquencies in their contracts with clients. Dioses agrees it’s a risk, but says he has a solution.
“The problem might lie in the collections process,” he says. “You can have individual clients that pay you immediately, but those in the B2B sector might have delays in their own collections processes. But with the right working capital set-up, you can deal with this.”
What’s more, equipment rentals could turn into a global trend, Dioses says optimistically – something that would be great for leasing fintechs.
“The fintech industry is going to find a lot of opportunities in this situation, since they offer distance-based solutions,” said Dioses.
“Since there’s no physical contact, the industry will really take off. Of course, this doesn’t depend exactly on the company, but rather the stage that your start-up is in when this pandemic crisis hit.”
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Credit & Covid: Special Webinar
iupana is organizing a special webinar this Thursday, April 2, at 10am (MX) to examine the implications of coronavirus for digital consumer lenders in Latin America.
Join the following panelists in this exclusive conversation, which will be conducted in Spanish:
Kenneth Mendiwelson, Founder of Refinancia and Referencia, Colombian fintechs with sizeable point-of-sale lending operations
Juan Antonio Cabañas, CEO of Latin Fintech, Peruvian fintech which offers unsecured consumer loans
Víctor Manuel Borrás, CEO of Bien para Bien, Mexican home-equity lender
The conversation will be moderated by Katie Llanos-Small, editor and founder of iupana.
It’s free to join the webinar – sign up here.
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