Absolutely brilliant. There's an entire untapped market of sub prime credit that will rack up a few dollars balance then be trapped in the minimum payment cycle forever. Very low risk and huge upside. I'm surprised this hasn't caught on in the US yet.
Micro-loans actually seem better than the standard western practice of credit cards. With a credit card the individual never pays for their own transactions, they're completely sidelined then pay back the cost + more later. At least with a micro-loan the individual actually is involved and in control of the money.
When you say Western, you mean American. Almost nowhere in Europe is buying on credit the norm, but debit cards or credit cards that debit your bank account directly.
FTA: "Borrowers don’t incur any interest unless they miss payment deadlines or sign up for installment plans."
So yes, this sounds exactly like a western style credit card, just with a micro-credit limit. You get X days of interest free credit, then pay interest if you take longer than that to pay (or set up a fixed payment plan, which some western cards also offer).
Credit cards give you a 30 day loan with no interest. Interest only starts on purchases after one bill cycle. What is the average duration of a microloan?
The smaller you make the loan, the more pointless it becomes for more and more of the population. For clarity, consider the extreme case: very few people would consider taking a loan of a penny, however many people would consider taking a load of $10,000. A penny is a negligible fraction of your earning power, so it makes more sense to wait 2 seconds at work than to spend 3 seconds taking out a penny loan (and I'm being generous to modern tech; it will take you longer than 3 seconds to take out a loan).
Credit cards acknowledge this issue by construction. They assume that there's some overhead (convenience, time, effort, etc.) with paying back a loan, so what they effectively do is allow you to batch transactions together and pay them all back at once. That way, you don't have to log in every time you make a purchase to "refill". Of course, if this "refill" has no overhead cost, then it wouldn't matter.
I don't think you're likely to find too many micro-borrowers on this site.
We used to set up micro-finance co-ops in developing countries. The amount of seed money requested by borrowers was ridiculously small - $100 to set up a corner store in the front room of someone's home, $150 to buy some clothing wholesale and sell it retail door to door.
What we found was that the people who most need credit often just to make ends meet are the ones who are least likely to have access to it. So they resort to "village moneylenders" which is a nice way of saying loan sharks (whose interest rates just perpetuate the cycle). Compare that with people who are relatively rolling in cash who can play all sorts of games with multiple lines of credit and basically work the system in their favour.
I understand that the amounts seem absurdly small, but for some people "I have no money" literally means that they have $0.00, not "I only have a couple of hundred and my credit cards, overdraft, afterpay, etc to get me through to pay day"
I haven’t used this or any other micro-borrowing service. But we’ve got over a decade‘a worth of failed microtransaction services in the West. I’m going to guess that this is a fantastic way to encourage traction with such a service. Want to spend a few cents here and there? Great! Get started and pay us later. Then when you’ve used that up they get your (bank) details and trust you with more and more credit, until they’re no longer micro-loans. And people buy all sorts of stuff (consumer goods) on credit, this much shouldn’t be a surprise.
I remember how anxious I was when, as a student, I didn’t know if a CC charge would be declined or if a debit charge that brought my account balance would fall to -$0.02, thus bringing the wrath of a $29 overdraft fee. The overdraft notice is also a distinctly anxiety-inducing letter.
Microloans are typically offered to people who are not eligible for larger, more traditional loans.
Also, some people who want expensive consumer goods do so for the feeling of the purchase and the feeling of accomplishment, but ignore the nagging reality that they haven’t actually accomplished the purchase until it is paid off.
Yes every single day I micro borrow amounts as low as 2.99 to buy coffee. I pay these off with zero interest at the end of the month. It gives me a way to get what I want without having cash in hand. It’s great. Some micro loans even pay ME for taking them.
I use this "HuaBei". I wouldn't call it "borrowing". Actually the Ant-finance have another product called 'JieBei' which means 'just borrow'.
"HuaBei" works like the credit card, if you pay within the 1 month, you don't need to pay interest.
There are the following reasons encourage people to use this.
- 1) You get cheaper product (not a lot, but still cheap)
- 2) If you use this HuaBei and pay off on time, you'll get higher credit score which is called 'sesame credits'. With it, you can go to the hotel without paying in advance. Or you can use it as the finance statement when applying VISA.
- 3) Ant finance also have funds products. The most used one is 'YU'E bao'. It is monetary fund. The yearly interest rate for now is around 2.3%(used to 4%). You can deposit and withdraw any time. If I don't pay the product with debit but the "huabei", after 1 month I got more money.
In addition to cookie_monsta's answer, you also have to consider that a very sizable portion of microcredit borrowers live on a day-to-day or week-to-week budget. Often times income in will be lumpy whether from a paycheck every two or four weeks or because sales from their micro-business being lumpy as well (e.g. maybe they most of their money at the market on the weekend).
One factor is that it's easier to say "I'm paying back a loan" than saying "I need to buy new shorts". Keep in mind that loans and gifting are pervasive features of low income communities already.
- Convenience:
Having your payment info saved in Alibaba (or Jet,Walmart,Amazon etc) makes it easier to purchase & check out especially because you don't have to incur the financial consequences right away.
- Increased buying power & revenue:
The customers don't incur any finance charges. This allows them to purchase $14 worth of products while only paying $7 right away. The merchants that sell the products likely pay a transaction fee. As such, Ant/Alibaba can generate additional revenue from the increased sales and transaction fees.
Personally I believe any kind of consumer lending is bad. It is for consumption, it is for profit, and ultimately creating new liability for borrowers. Chinese companies are learning from west financial institute for this lucrative practice, which in long term is bad for Chinese economy. In short term, it may stimulate consumption. Also as a Alipay user, I didn't intend to have a Huabei account, it was created automatically, and all my purchases on Taobao go through it automatically. I didn't bother to change it. I believe most accounts are created this way.
Consumerism exists largely because of financing. It's pretty much essential for big-ticket purchases, which is why so many places in the West offer it for free.
I have several problems with this and I'm concerned by the number of people promoting this as a good thing:
1. "Nearly half of Huabei's users are under the age of 30 [..]". There is value in teaching young people to budget well and save for what they want or need. There's this feeling of "hard earned, well looked after" with many of the items I personally own.
2. Whilst the intention is supposedly good, I feel as if this is really a move towards putting large amounts of the Chinese population into a debt for (mostly) meaningless purchases. This isn't somehow generating more money for the average person, this just traps them into borrowing from their future selves at a worse rate. This doesn't lift people out of poverty, if anything it traps them in it.
3. "As of June, 1.6% of Huabei's outstanding loans were more than 30 days past due, while 1.2% were more than 90 days overdue, according to a document for bond investors.". That's 1% overdue every month! They compare this to credit cards, but it's a false equivalency. People getting credit card loans a) typically plan to get something that will hold value and b) there are fewer of these loans approved.
And lastly:
""Only at the end of each month did I realize how much I've spent," Ms. Zhang said, adding she made many impulsive purchases on clothes and cosmetics because the credit was available to her. She said she has never been late with her repayments."
Therein is the major problem, people purchasing non-essential items without care because the money is readily available. If only she had waited just a single month she could have saved money, even whilst purchasing the same items.
Micro-loans could be mostly considered as a poor-people tax. A communist backed newspaper should know better.
I think the parallel is not exploitative pay day loans but the western credit card. China is not as developed as the west when it comes to trust and identity. This causes credit mostly to be given to a few well established and well connected identities. And leaves China with a high savings rate. Changing that will unlock further growth and spread of wealth.
They are basically pushing a credit line in-app to half a billion users.
That's the wet dream of western credit card companies.
Sure in some perspective getting people not used to debt at all to easily overspend might be called empowering from a twisted neoliberal point of view.
That's par for the course when it comes to propaganda.
It's even worse when it comes to international news. How many times has china "conquered the middle east" or "colonized africa"? A lot more than you think if you follow the news.
"China's latest conquest: Middle East power broker - commentary"
When we actually invade and conquer the middle east, the media portrays it as "bringing freedom". When we actually colonize africa, the media portrays it as "aid".
Of course it isn't just the west spreading propaganda, china does it also. It's why it comes to geopolitical or controversial events, you need a wide variety propaganda to get as honest an assessment as possible because every side lies about something and is honest about other things.
Ant Financial is owned by Alibaba and Jack Ma. Alibaba is founded and owned by various communist party members. Jack Ma is a communist party member. Ant Financial is essentially co-owned by the Chinese Communist Party.
In order to encourage a failing economy, trap more consumers in debt (China has an outrageous 400%+ total debt to gdp) and prevent unrest, CCP is giving a $7 credit limit to its 700M people in poverty. Whether it works or not is debatable, as Chinese consumers are already neck deep in debt and hurting from rising inflation
[+] [-] aphextron|6 years ago|reply
[+] [-] liberalkut|6 years ago|reply
[deleted]
[+] [-] superkuh|6 years ago|reply
[+] [-] brnt|6 years ago|reply
[+] [-] ac29|6 years ago|reply
So yes, this sounds exactly like a western style credit card, just with a micro-credit limit. You get X days of interest free credit, then pay interest if you take longer than that to pay (or set up a fixed payment plan, which some western cards also offer).
[+] [-] notfromhere|6 years ago|reply
[+] [-] adrr|6 years ago|reply
[+] [-] anonytrary|6 years ago|reply
Credit cards acknowledge this issue by construction. They assume that there's some overhead (convenience, time, effort, etc.) with paying back a loan, so what they effectively do is allow you to batch transactions together and pay them all back at once. That way, you don't have to log in every time you make a purchase to "refill". Of course, if this "refill" has no overhead cost, then it wouldn't matter.
[+] [-] mattmanser|6 years ago|reply
[+] [-] nine_zeros|6 years ago|reply
I understand how micro-finance helps small scale borrowers at a micro level and boosts the economy at a macro level.
What I don't understand is what drives so many consumers into micro-borrowing for basic consumer-level purchase.
Could someone who has used such services explain who and why micro-borrowing was useful for them?
[+] [-] cookie_monsta|6 years ago|reply
We used to set up micro-finance co-ops in developing countries. The amount of seed money requested by borrowers was ridiculously small - $100 to set up a corner store in the front room of someone's home, $150 to buy some clothing wholesale and sell it retail door to door.
What we found was that the people who most need credit often just to make ends meet are the ones who are least likely to have access to it. So they resort to "village moneylenders" which is a nice way of saying loan sharks (whose interest rates just perpetuate the cycle). Compare that with people who are relatively rolling in cash who can play all sorts of games with multiple lines of credit and basically work the system in their favour.
I understand that the amounts seem absurdly small, but for some people "I have no money" literally means that they have $0.00, not "I only have a couple of hundred and my credit cards, overdraft, afterpay, etc to get me through to pay day"
[+] [-] pmjordan|6 years ago|reply
[+] [-] thephyber|6 years ago|reply
I remember how anxious I was when, as a student, I didn’t know if a CC charge would be declined or if a debit charge that brought my account balance would fall to -$0.02, thus bringing the wrath of a $29 overdraft fee. The overdraft notice is also a distinctly anxiety-inducing letter.
Microloans are typically offered to people who are not eligible for larger, more traditional loans.
Also, some people who want expensive consumer goods do so for the feeling of the purchase and the feeling of accomplishment, but ignore the nagging reality that they haven’t actually accomplished the purchase until it is paid off.
[+] [-] encoderer|6 years ago|reply
[+] [-] forkx|6 years ago|reply
"HuaBei" works like the credit card, if you pay within the 1 month, you don't need to pay interest.
There are the following reasons encourage people to use this.
- 1) You get cheaper product (not a lot, but still cheap)
- 2) If you use this HuaBei and pay off on time, you'll get higher credit score which is called 'sesame credits'. With it, you can go to the hotel without paying in advance. Or you can use it as the finance statement when applying VISA.
- 3) Ant finance also have funds products. The most used one is 'YU'E bao'. It is monetary fund. The yearly interest rate for now is around 2.3%(used to 4%). You can deposit and withdraw any time. If I don't pay the product with debit but the "huabei", after 1 month I got more money.
(I feel like I should write a blog about this ;)
For me, the reason 2 is the most important one.
[+] [-] coderintherye|6 years ago|reply
[+] [-] kevmo314|6 years ago|reply
[+] [-] nostrebored|6 years ago|reply
[+] [-] erikig|6 years ago|reply
- Increased buying power & revenue: The customers don't incur any finance charges. This allows them to purchase $14 worth of products while only paying $7 right away. The merchants that sell the products likely pay a transaction fee. As such, Ant/Alibaba can generate additional revenue from the increased sales and transaction fees.
[+] [-] unknown|6 years ago|reply
[deleted]
[+] [-] powerapple|6 years ago|reply
[+] [-] pjc50|6 years ago|reply
[+] [-] bArray|6 years ago|reply
1. "Nearly half of Huabei's users are under the age of 30 [..]". There is value in teaching young people to budget well and save for what they want or need. There's this feeling of "hard earned, well looked after" with many of the items I personally own.
2. Whilst the intention is supposedly good, I feel as if this is really a move towards putting large amounts of the Chinese population into a debt for (mostly) meaningless purchases. This isn't somehow generating more money for the average person, this just traps them into borrowing from their future selves at a worse rate. This doesn't lift people out of poverty, if anything it traps them in it.
3. "As of June, 1.6% of Huabei's outstanding loans were more than 30 days past due, while 1.2% were more than 90 days overdue, according to a document for bond investors.". That's 1% overdue every month! They compare this to credit cards, but it's a false equivalency. People getting credit card loans a) typically plan to get something that will hold value and b) there are fewer of these loans approved.
And lastly:
""Only at the end of each month did I realize how much I've spent," Ms. Zhang said, adding she made many impulsive purchases on clothes and cosmetics because the credit was available to her. She said she has never been late with her repayments."
Therein is the major problem, people purchasing non-essential items without care because the money is readily available. If only she had waited just a single month she could have saved money, even whilst purchasing the same items.
Micro-loans could be mostly considered as a poor-people tax. A communist backed newspaper should know better.
[+] [-] AYBABTME|6 years ago|reply
[+] [-] chvid|6 years ago|reply
[+] [-] lsiebert|6 years ago|reply
[+] [-] pjc50|6 years ago|reply
[+] [-] wufufufu|6 years ago|reply
[+] [-] yorwba|6 years ago|reply
[+] [-] EsssM7QVMehFPAs|6 years ago|reply
That's the wet dream of western credit card companies.
Sure in some perspective getting people not used to debt at all to easily overspend might be called empowering from a twisted neoliberal point of view.
[+] [-] s1k3b8|6 years ago|reply
It's even worse when it comes to international news. How many times has china "conquered the middle east" or "colonized africa"? A lot more than you think if you follow the news.
"China's latest conquest: Middle East power broker - commentary"
https://www.cnbc.com/2018/06/28/chinas-latest-conquest-middl...
China is "colonizing" africa.
"China raises fears of 'new colonialism' with $60 billion..."
https://www.telegraph.co.uk/news/2018/09/03/china-invest-60-...
When we actually invade and conquer the middle east, the media portrays it as "bringing freedom". When we actually colonize africa, the media portrays it as "aid".
Of course it isn't just the west spreading propaganda, china does it also. It's why it comes to geopolitical or controversial events, you need a wide variety propaganda to get as honest an assessment as possible because every side lies about something and is honest about other things.
[+] [-] teej|6 years ago|reply
[+] [-] freyr|6 years ago|reply
[+] [-] liberalkut|6 years ago|reply
In order to encourage a failing economy, trap more consumers in debt (China has an outrageous 400%+ total debt to gdp) and prevent unrest, CCP is giving a $7 credit limit to its 700M people in poverty. Whether it works or not is debatable, as Chinese consumers are already neck deep in debt and hurting from rising inflation
[+] [-] jacob019|6 years ago|reply
[+] [-] dang|6 years ago|reply
[+] [-] mattnguyen|6 years ago|reply
[+] [-] jan6|6 years ago|reply
[deleted]
[+] [-] negamax|6 years ago|reply
[+] [-] baybal2|6 years ago|reply