How Jack Ma is changing China’s lending landscape?

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Alibaba founder Jack Ma is breathing fresh life into small businesses in China via his four-year-old online lending solution MYbank.

As per a Bloomberg report, the platform’s real-time payments data and a risk-management system analyses over 3,000 variables to approve the disbursement of loans in three minutes.

These variables, after procuring permission from the borrower, take into account a users’ credit history and spending patterns to determine 'creditworthiness', it added.

The trade-off for data access is that the process takes an average of three minutes, needs no interaction with bankers and cash is made available instantly once approved. The approval rate is also four-times higher than traditional lenders who reject 80 percent of loan requests and take 30 days to sanction the same.

MYbank has so far disseminated two trillion yuan ($290 billion or Rs 29,000 crore) to nearly 16 million small borrowers, the report added. The system seems to be working as the default rate is a mere one percent.

China’s fin-tech boom catapulted it to the leader position in the e-payments space and these companies are now reshaping the economy’s finance landscape by shifting focus from the state-owned giants to smaller tickets.

The shift would be significant for China’s $13 trillion economy as small businesses contribute 60 percent of the country’s growth and 80 percent of employment. The sector had so far been stifled by state curbs on shadow banks.

"China is quickly becoming a world leader in the use of big data and artificial intelligence technology to make loans. Among the country’s biggest advantages: it takes a more relaxed approach toward privacy than many other jurisdictions," the article quotes Cliff Sheng, co-head of Greater China financial services at Oliver Wyman, a consulting firm, as saying.

The Chinese government’s social credit system, which saw a fevered debate globally, would also benefit such endeavours with systems to punish misbehaviour. MYbank President Jin Xiaolong was quoted as saying that small borrowers, who default on payment, would lose on social credit score and find it harder to secure a loan.

The space is seeing much interest as other biggies such as Tencent Holdings, Ping Ah Insurance Group and China Construction Bank Corporation have also ramped up services.

Zhang Gengsheng, Vice President at Construction Bank in Beijing, told the wire that it is a profitable business as long as you can keep the risks in check.