Published: April 29, 2015
International Personal Finance is tapping into growing demand for credit among the citizens of emerging Europe.
The reputation of the personal finance industry has taken a battering in recent years. Public perception is dominated by payday loan firms such as 1FirstCashAdvance from the US, or the UK’s Wonga, which in October wrote off £220mn (US$327mn) of loans deemed improperly granted by the Financial Conduct Authority. Nevertheless, there is real need for consumer credit, especially in regions such as Central and Eastern Europe, where the risk appetite of banks is lower and fewer people have a credit history. Valued at around £1.1bn (US$1.7bn), London-listed consumer lending company International Personal Finance (IPF) has a growing presence in Poland, Lithuania, Romania, Bulgaria, Hungary, the Czech Republic and Slovakia (as well as in Mexico) and with the recent acquisition of MCB Finance Group will soon expand into Finland and the Baltic states.
The company’s model is quite traditional, reminiscent of the bank manager-customer relationship of 30 years ago. Its agents interview potential borrowers – typically those with no or a weak credit history – in their homes to decide whether they are safe to lend to and how much they could receive. In December 2014, IPF began to branch away from this face-to-face model with the launch of Hapi Loan, an online platform initially aimed at Polish customers.
IPF saw strong underlying profit growth of 21.5% (to £123.5mn) in 2014, but has had to contend with regulatory changes in three of its biggest markets – Poland, Hungary and Slovakia – which have had a negative impact on business there. Here, chief finance officer Adrian Gardner discusses the firm’s relationship with the regulators, the importance of due diligence and how to make sure customers benefit from consumer credit without falling deep into debt.
EMEA Finance: How do you carry out accurate due diligence on people with little or no credit history?
Gardner: Up until the beginning of December 2014 [when the company launched Hapi Loan], all of our business was what we call home credit business.
With home credit we had 2.64mn customers at the end of December and do not advance a single euro, zloty or forint without meeting the customer first. We have a credit scorecard, we assess people’s applications and then send an agent to their home. The agent will go through the income of the customer, their expenses and try to understand what is affordable – they will then decide whether to advance a loan or not.
The nature of our customer base is people who either have a very limited credit profile or no credit profile. We are not a sub-prime lender – our customers don’t have a damaged credit history. We anticipate loss rates to be higher than a bank would typically accept and we think we are quite good at assessing and pricing that risk. We don’t lend to A,B or many C1 customers. We do lend to C2 and D, but not to E where the credit profile is too poor.
We are trying to get that happy balance between providing credit to people who can afford it and making sure that we can grow our business in a responsible way.
EMEA Finance: The past year has seen great regulatory change in many of your markets, with governments trying to prevent their citizens taking on unmanageable debt. What have been the major sticking points?