Indonesia best market in SE Asia for micro-consumer lending

Photo by Maciej Bledowski

Robocash Group has studied the environment of South and Southeast Asia in terms of risks for micro-consumer lending. Embracing strategic, operating, and financial factors, the research shows that a high risk background does not necessarily exist for the business. It suggests broader prospects for players able to cope with such factors. Indonesia turned out to provide the most appropriate risk environment for the industry, while Myanmar, Cambodia and the Philippines are the riskiest markets.

Generally speaking, the higher the economic development of a country, the lower the risks for banking activities. However, other aspects come to the fore in the case of alternative lending. It usually serves clients with limited access to banking products and potentially lower financial discipline.

ASEAN fintech companies are worried about three main areas: market, technological and regulatory risks. They include competition within the industry, including banks, changes in regulation and preferences of customers. There are also operating, financial, and credit risks.

The comparison of countries in Southeast and South Asia provides a ranking according to risks for non-bank micro-consumer lending.
To start with, MalaysiaBrunei and Singapore shared the first three places (from the third to the first, respectively) in the ranking as they provide the least uncertainties for the industry. However, they cannot offer promising prospects either. Strong banking and low customer base dominate their local financial industries.

In contrast, MyanmarCambodia and the Philippines took the lowest positions in the ranking: from 13 to 11, respectively. They have the riskiest background for alternative lending. The main points are the high market competition, potential regulatory updates and low financial discipline among customers. In this case, the higher the risks, the better the returns for players ready to cope with such circumstances.

Overall, the reasonable risk for micro-consumer lending is in India (10) and Sri Lanka (9). The most uncertainties come from regulation and competition. In India, there exists a constraint environment, which facilitates mergers and acquisitions. Then, Thailand (8) follows with well-built regulation of the industry. However, with the increasing significance of banking and progressing GDP, alternative lending may lose the interest of customers. To be aware of changes, local players should monitor the situation closely.

In contrast, Laos (7) and Vietnam (6) are still developing their financial systems. This creates both difficulties and opportunities for business. However, the latter seems less risky due to the more advanced economic institutions present.

Finally, even though they do not provide the lowest risks for the industry, Bangladesh and Indonesia offer the most favourable environment in terms of risk and prospects. Bangladesh (5) is an emerging country with one of the lowest economic development in the region. Still, it has a rich history of microfinance companies and a developed alternative lending market. The main reason for worry is credit risk.

Dynamically developing and promising Indonesia (4) stands out in the mentioned background. It has a diverse online lending segment attracting more and more players, including foreign ones. At the same time, with the introduced licensing of players, the market continues to change. For instance, Sharia-compliant financing is also gaining momentum and already affects the segment.

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