Microfinance organizations in Europe have come a long way from companies that lent to everyone to fintechs with advanced scoring systems and artificial intelligence. What does the industry expect next?
The market of microfinance organizations is actively developing in almost every corner of the globe. Perhaps the rapid growth rate of this segment is due to the high demand for microfinance on the part of the population. But in order to compete with traditional banks, MFIs have to be as efficient as possible. For this purpose, companies are actively introducing new technologies, including algorithms for analysing and processing data.
While earlier European countries were the leaders in the financial sector, having systematically developed their banking services over several centuries, the rapid development of the Internet and the mobile gadget market has led to the emergence of strong players in less developed countries as well.
For a long time, Europe was inferior to the USA in terms of banking sector development and quality of services, which can be largely explained by the lack of competition due to state monopolization. Now the situation has changed significantly for the better.
Bad reputation – good prospects
In Europe, MFIs have a very negative image. This is partly the fault of the companies themselves: at the stage of birth and formation of the microfinance industry, a huge number of unscrupulous and unprofessional organizations were operating in the market. Interaction with borrowers was quite harsh and was sometimes accompanied by outright banditry on the part of collectors.
Clients did not always clearly understand what they were getting into when they signed a loan agreement, as hidden terms were deliberately written in small print. At the same time, the new segment was practically not regulated in any way by legislation. Is it any wonder that the industry developed a bad reputation, which makes itself felt even now, when the Central Bank initiated the formation of a pool of companies recognized as trustworthy?
Financial recklessness
There is no doubt that the U.S. has a higher overall level of financial literacy than Europe, which can be explained by a number of reasons. For example, in the U.S., unlike in Europe, the population is a physical operator. People are used to counting their money and reporting to the state on their own. In Europe, part of the tax deductions fall on the shoulders of employers, who deduct them from the employee's salary before they are credited to his bank card.
On the one hand, this option is certainly convenient for the employee, but at the same time many people do not realize their role in the formation of the country's budget, and as a result, they are not so attentive to the efficiency of spending these funds by the state.
On the other hand, some Russians treat their own personal or family budget rather lightly. Therefore, it is not surprising that a convenient financial instrument has gained a negative reputation in Europe. However, the situation is gradually improving due to the actions of the regulator and more and more borrowers are using MFI products for their intended purpose.
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