Nano-finance business in 2021 slowed down by COVID-19 pandemic, waiting for economic recovery

         Nano-finance has continued to grow since its first launch in 2015 but slowed down in 2020 due to the COVID-19 outbreaks. The major credit providers have suspended new lending due to the costs of customer screening and debt collection, resulting in a reduction in outstanding loan balance to THB17,441 million at the end of 2020, while non-performing loans (NPLs), on the other hand, has accelerated to 6.1%. Moreover, there has been competition from major competitors; title loans, especially motorcycle title loans, have intensified, which better meet credit providers’ needs in terms of risk and income. This has led microfinance business operators to focus on this market, targeting customers with similar income levels as those in the nano-finance business.

         The above situation has prompted nano-finance providers to adapt in many ways, including offering loans via digital channels to tap potential retail customers and reduce business costs, offering information-based lending via cooperation with business partners on various online platforms that have large supplier and customer bases, and scaling down credit limits to THB5,000-50,000 in order to diversify risk.

          KResearch expects that the nano-finance business will achieve a growth of 1-5% in 2021 after consecutive contractions in 2019-2020, because some large credit service providers are pioneering digital nano-finance channels, while prudential approval of credit will continue to improve the NPLs of the nano-finance business. However, if the COVID-19 outbreak is brought under control and economic activities return to normal both domestically and internationally, competition in the nano-finance market is expected to become active again as nano-finance yield is higher than other retail loans, i.e. a rate at the high end of 33% will attract large bank operators to enter this market to compete for market share.