The Russian loan originator Lime Zaim started offering a new type of consumer loans to investors on the portal Bondster. These are short-term loans with a maturity of up to 40 days, buyback guarantee and a 15.5% return. Olesya Bobkova, the fintech company’s Country Manager, answered our questions in the interview below.
What kind of loans will you offer on the Bondster newly? What will be the interest rate and guarantees?
Our company has been working with Bondster in the course of installment loans for years. This type of loans is characterized by loan amount 6k-70k RUB, duration from 42 to 168 days and annuity payments.
Lime offers guaranteed buyback at 60th day overdue (we offered guaranteed buyback at 29th day overdue before). Our company is constantly working at the accuracy of decision making and scoring policy.
At the moment, we are ready to offer our second basic product payday loan (PDL) to Bondster investors. This type of loans is characterized by loan amount 2k-20k RUB, duration up to 40 days. We suggest investing into PDL at the rate of 15.5% per annum. Lime is going to co-invest 10% of the product. Buyback at 60th day overdue is also guaranteed.
What kind of clients do you focus on with payday loans? What is the average interest rate on these loans?
We focus on individuals aged 20-45 all over Russia who already have a credit history. Our average rate is 290% per annum (0.8% per day), however, due to the short term of the loan, the overpayment of clients is about 20%. We are actively moving towards differentiating rates for clients depending on their risk profile. According to PDL, the maximum rate on the Russian market can reach 365% per annum (1% per day).
Could you please describe your risk management policy and related procedures?
We adhere to a rather conservative policy - we maximize the profit rate for each individual loan, not the total loan to value (LTV). When evaluating clients, we use a cascade of several ensemble scoring models and several antifraud models - classical risk rules, customer device analysis, graph comparative model. We also have manual verification of clients, which clients go-to for more formal confirmation of identity - providing a photo, answering questions about credit history.
Over the past year, significant work has been done in the direction of risk management and, despite COVID, the share of bad debts has decreased twice. In 2021, we plan to continue this trend and reduce nonperforming loans 90 days past due (from the date of maturity under the contract) by another third.
What people usually borrow money for?
The main goal of clients when using PDL is to close accounting gaps. If we talk about specific things for which money is taken, then these are repayment of loans and payment of bills with fixed payment date, daily purchases, financing of their work activities.
I think only the last point can raise questions. The point is that some people use the resources of the sharing economy to work, for example, they rent a car to work in a taxi. They will receive income later - in a few days. And to start earning, they take a small loan for work expenses and return the funds after receiving income.
What are your competitive advantages?
Our advantage is that a client can receive money within 15 minutes, anywhere, 24 hours, 365 days a year. We are building a stable, fast and transparent lending platform.
Our main advantages over other competitors are following:
- Transparency - we have no imposed products and hidden payments.
- Benefit - we give a rate below the market average. With the development of differentiation of rates, we will be able to give multiple best prices to our regular customers.
- Strong IT team - most of our developments are done in-house. This gives us flexibility in choosing a development path since we can remove any technical limitations of the platform if required.
What is your position on the market?
In terms of the volume of loans issued, in the last published rating of Expert RA (Russian rating agency), we ranked 16th among microfinance organizations. This is due to the fact that this rating is built on the first half of 2020, which accounted for the main effect of the pandemic. In the second half of 2020, we issued more than 1.5 times more and now we continue to grow monthly by 5-7% in volume.
We have a 1% market share, and by the end of 2021, we plan to increase our share to 1.3%, taking into account the fact that the entire market will grow by 15%. Thus, the total increase in issuances relative to 2020 should be about 50%.
What opportunities people have to borrow money and what is specific for them?
The Russian market can be considered traditional, 99% of loans are issued by banks and only 1% falls on non-bank financial institutions. However, the share of microfinance institutions (MFIs) is actively growing due to the growth of customer confidence and speed - most banks are not yet able to issue loans completely online.
Also, now more and more clients receive refusals from banks, often due to a too traditional approach to assessing the borrower. These clients flow into the MFI sector. If a year ago only 8% of clients were simultaneously clients of the bank and MFIs, then by the end of 2020 there were 15% of such clients, of the entire creditworthy population.
Could you please describe your company shortly?
Lime is an international fintech company operating 100% online. Company is doing business in Russia since 2013. For over 7 years Lime has grew from a small start-up into an international brand. Company has got its own IT department developing fintech tools. By now Lime has developed its own unique scoring system which makes business processes fully robotic and accurate.
Around 170 employees work for Lime in Russia. All of the company’s processes are in-house. Key Lime managers are professionals with long-standing experience: CEO Aleksey Nefedov, Country manager Olesya Kiseleva, Head of the Financial Analysis and Audit Department Evgeniya Kukueva, Director of Legal Affairs Yurij Dergunov.
Company is going to publish 2020 financials soon. In spite of all market difficulties in 2020 because of COVID-19 Lime managed to finish 2020 with 4M RUB profit.
Is lending in Russia subject to any regulations?
The Russian lending market is strictly regulated by the Central Bank of Russia. All indicators related to provisioning, capital adequacy, observance of client’s rights are checked monthly. Once every 1-3 years, the Central Bank runs field checks with a full audit of the company's activities. Changes in policies affecting the stability of the company must be agreed with the Central Bank.
However, there is enough space for the implementation of new products and initiatives on the market, we don’t feel strong restrictions due to regulation, yet.
For the MFI sector, such regulation is even positive, as it increases confidence in the sector. This is especially important since in Russia more than 1300 organizations are licensed by MFIs and not all of them conduct their activities honestly. The presence of such players negatively affects the entire sector.
Have you been affected somehow by COVID-19 pandemic? How did you cope with the situation?
The COVID-19 epidemic hit us quite hard - many clients lost their only source of income, government support was minimal, and it became necessary to pay significant amounts to investors. This led to the fact that in April-May we were forced to significantly reduce the issuance. However, such a challenge forced us to act decisively - to significantly reduce operating costs, abandon several unprofitable projects, and focus on the core of the business.
As a result, already in July 2020, we returned to growth and continue it now. I think the most representative indicator will be the sum of active loans. So, this indicator has grown by 75% since the summer and continues to grow every month. By the end of 2021, we plan to almost double our issuance compared to the end of 2020.
What are you projections for the next quarter in terms of issued loans?
We expect that our portfolio is going to grow in Q2 2021 increasing share of installment loans.
Are you planning to introduce any new products to your customers on the Russian market?
Perhaps in the second half of 2021, we will try to launch a new loan product. Throughout the first half of the year, we will actively develop the effectiveness of the existing PDL and installment loans. Also, we plan to develop installment loans in 2021 - we will provide customers with new tariffs with significantly larger amounts and terms at lower rates.
Would you like to share anything with investors on Bondster?
In 2021, we will develop 2 types of initiatives - aimed at increasing the issuance and increasing the efficiency of issuing. We use the principle of "tick-tock" - "tick" - an increase in issuance, "tock" - an increasing in efficiency. This strategy allows us to grow qualitatively, and not just burn more and more marketing budgets. We do not plan to enter qualitatively new areas of business until we bring the main product to the level of the top-3 players in the market. We will also test work with new segments, for example, with clients who are taking out a loan for the first time - now our scoring models and limit policy are sufficiently developed to solve this problem.