HONG KONG/MUMBAI/SINGAPORE – The spring started out rosy for the Indian arm of ClearScore, a company that offers online credit scores and loans.
Within weeks, the coronavirus pandemic had taken hold, drastically changing the picture for the online lending industry in Asia.
“In the second week of March, we were talking about what a great quarter it would be and a month later I had to let go of the team,” said Hrushikesh Mehta, country manager for India at ClearScore.
The UK-based company shuttered its India business on April 13, as 10 out of 14 lending partners withdrew their products within three days of the launch of a nationwide lockdown.
Alternative lending companies and platforms across Asia are scrambling to raise funds and stave off bankruptcy as they face a wave of bad loans.
Sixteen lenders and investors in markets across Asia Pacific said companies were laying off staff and cutting costs to survive.
Online lending had been one of the hottest sectors in recent years, as new players bet that a digital approach meant they could lend profitably to entities that banks found too costly or bothersome.
Asian online lenders raised more than $4 billion in 2017 and 2018, with Indian and Indonesian companies most prominent, according to data provider Tracxn.
In India there are nearly 500 online lending start-ups, and roughly 160 in Indonesia, many backed by Chinese money.
Some are peer-to-peer platforms (P2P), which match borrowers with individual lenders who hope to earn a higher return on savings; others use their own funds or partner with other institutions. Many combine all three approaches.
But as economies across Asia went into lockdown to limit the spread of the new coronavirus, many borrowers defaulted.
“I think it is only about 20 to 30 percent of (Indian online lenders) that are well capitalized, and the rest are going to struggle. 70 percent are staring at an existential crisis,” one online lending chief executive said, speaking on condition of anonymity because of the sensitivity of the matter. “Since the lockdown started, demand is down by 90 percent and lending now is down by 95 percent”.
Dima Djani, CEO of sharia-compliant Indonesian business P2P lender ALAMI, described the situation as “natural selection”.
“This is a test. Those come out unscathed will be the champions in a more saturated P2P landscape going forward,” he said.