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Longer in the tooth but still a catch


Consumer finance gaining popularity

Updated: 2010-04-01 00:00
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BEIJING — The cameras were rolling at Dazhong Electronics earlier last month as 36-year-old Zhang Hongqi picked out a 5,880-yuan ($864.7) Apple iPhone 3GS.

  Zhang, who works for a local food company and earns 3,560 yuan ($521) a month, was the first customer of Beijing’s first consumer finance company.

Wearing a fashionable titanium necklace, designer sunglasses and a black jacket, Zhang handed the high-tech phone to a sales clerk and told him to ring it up.

“Frankly, I have been dreaming about this mobile phone for a long time,” he said. “It (a consumer finance company) is worth trying because I only pay an additional 1 yuan per day on average in interest fees.”

Zhang is by no means an average consumer. Most Chinese are habitual savers and borrow hesitantly, if at all. Home mortgages are common, but car loans are a novelty, and borrowing for a cell phone was, until last month, unheard of.

After completing the application form, the process took Zhang only 20 minutes. He made no down payment, but will pay 520 yuan to the consumer finance company in each of the next 12 months.

Technically, Zhang bought his phone from the Bank of Beijing Consumer Finance Co, the interest is 366 yuan  per year. Interest rates for consumer loans, whether from a bank, a finance company, or on a credit card, are fixed in China at between 4.9 percent and 5.9 percent. Compared to installment payments on his credit card, which would have charged 493 yuan the first month as a processing fee, Zhang figured his loan was a relative bargain.

“Consumer finance companies are very common in many markets around the world, but here, it is still a newly born baby and needs enough space and support to grow well,” said Miroslav Kolesar, China representative of PPF Group, a leading financial and investment group in Central and Eastern Europe.

PPF Group received approval from the China Banking Regulatory Commission (CBRC) to establish a consumer finance company in Tianjin in February. It is about to launch China’s second consumer finance company in May or June. That company will be named Home Credit Consumer Finance (China) and will be solely owned by PPF Group, with a registered capital of 300 million yuan.

Its function is to provide loans to low- and middle-income people, helping them buy durable goods such as electric appliances or finance home remodeling projects, weddings or travel.

By the end of the year, China will have a total of four consumer finance companies, with the other two located in Shanghai and Chengdu.

“Customers can get loans directly from the shop,” Kolesar explained. “You choose the goods in the shop, and our sales assistant will help you fill in the application for the loan. The data will be sent back to our office system, which is currently located in Shenzhen.”

The data is then processed and the client’s risk of default is evaluated, he said. The company makes the final decision on whether to grant the loan and informs the shop immediately. If the client is approved, he or she can take the goods home immediately.

“The approval rate will be about 75 percent and the entire process only takes about 20 to 60 minutes,” Kolesar said.

“The procedure is rather simple, as applicants only need to provide us with their ID cards and a second piece of documentation, such as a debit card or driver’s license.”

But some financial experts worry that the new companies may have trouble attracting customers.

Zhao Xijun, a finance professor at Renmin University of China in Beijing, said commercial banks have already established lending programs that the Chinese public is more familiar with.

“I doubt if these new companies will even be able to get 1 percent of the consumer lending market by the end of this year,” Zhao said.

Kolesar takes the opposite view.

 “I don’t think there is really direct competition,” he said. “They are simply serving different sectors of the market, different kinds of customers, and they can coexist.”

According to Kolesar, banks normally target affluent customers and try to interest them in more complicated financial products to diversify their portfolios. Consumer finance companies, on the other hand, seek customers of lesser means, he said.

“CFCs are offering simpler products and are also providing a much faster and easier way to get access to credit,” he added.

“Usually, if you want to get a loan from a bank, the procedure is relatively complicated, even with credit cards, because you have to apply for them in the first place.”

Last August, the CBRC chose four cities — Beijing, Shanghai, Tianjin and Chengdu, to launch a pilot program to introduce consumer finance companies, as part of its efforts to boost domestic consumption.

The Bank of Beijing Consumer Finance Co, which launched operations this month, said it has already talked with major Beijing electronics and home furnishings retailers such as Dazhong Electronics, Gome Electronic Appliances and Easyhome, about allowing people to apply for loans directly in stores.