Winning Formula

What made Indonesia such an attractive market, and what was it like building a presence in the country?

Indonesia is a great opportunity for the consumer finance business. Home Credit Group was founded 25 years ago in the Czech Republic, and we have been expanding internationally ever since. We want to bring in organized lending services for groups that are underrepresented. Our efforts began in Russia, and we subsequently expanded into Kazakhstan, Vietnam, and China. In 2012, we entered India, Indonesia, and the Philippines, providing huge jobs opportunity here and supporting the economy by creating multiplier effects. We sought to get a feel for how business is done in Indonesia and wanted to develop a winning formula for this opportunity-rich environment. We partner with retailers across the country, placing our own employees in their stores and offering financing for major purchases. Once we develop a large-enough customer base, we begin cross selling other products based on our services and customers’ needs. We have a suite of products that we can offer through our license. This is our point-of-sale (POS) distribution model. We are the largest POS player in the world and have nearly 400,000 locations across the 10 countries in which we operate. In Indonesia, we had about 800 POS in January 2015 and today we have grown to almost 13,000 POS.

What are your screening practices, and how do you maintain credit repayment?

Our system relies heavily on the tools that we have developed over the last 25 years in various countries. We take the strategies we learned and localize them. In Indonesia, around 40% of our core customer base had no experience with the formal lending sector. Consumer finance existed previously, though we bring to the market a different way of operating. A large portion of our decision and assessment procedures are automated, and we currently make lending decisions within three minutes of receiving an application. We rely on the information provided by customers as well as a credit report provided by the government and other data sources.

Will growing consumer confidence in 2018 change the makeup of your lending?

We introduced a mobile app in 2017 that will become a centerpiece of interaction between the company and our customers. We are currently building and introducing new features for our customers. In 2017, our volume tripled, though our productivity per shop improved only marginally. This means our growth came largely from increased distribution—we now have 24 offices covering 85 cities. We are changing some of our processes to improve our productivity and introducing a number of new strategies into our portfolio. We expect to more than double growth in 2018. We plan to cover an additional 46 cities that are mostly tier-2 and tier-3. By the end of 2018, we should cover 130 cities.

What do you hope to achieve in 2018?

We are mainly focused on profitability. We need to ensure that we have a business model that is flexible enough to compete with traditional players and emerging fintech. I welcome competition, though I worry about unregulated fintech because not all firms operating in that space are equal. Established players have an obligation to report to the debtors’ databank, while unregulated players do not. For us, it is critical to ensure that we do not over debt the customers. We want to ensure we have excellent data about exactly how much money people have borrowed, so we can ensure that our operations remain stable. We also expect to double our lending levels and expand our partnerships with local banks. Our growth will come from cross-selling products to customers who have established excellent credit histories. These loans typically grow to four or five times the original loan amount, increasing our volume and extending the repayment period.