The contraction of the fast credit industry: facts and causes

On October 9, 2014, the Association of Non-bank Lenders (LNKA) reported a significant decrease in the volume and volume of loans granted. Baiba Fromane, head of the LNCA, links changes in the industry with both legislative changes and industry self-regulation. This article will look briefly at what really happened to the industry and what might be the reason for the decline in activity in the fast credit industry.

January 13, 2016 A new name for the Association of Non-bank Lenders is “ Association of Alternative Financial Services”.

Fast Credit Industry in Figures

Fast Credit Industry in Figures

Comparing the first half of 2014 statistics with the first half of 2013, it can be seen that the volume of loans granted (ie in monetary terms) decreased by 31%, while the volume of loans issued decreased by 20%. In absolute terms, however, the industry is still in great turmoil: the volume of quick loans issued in the first half of 2014 amounted to USD 55.45 million. So the market has actually shrunk by almost a third. While it is difficult to understand the root cause or even how much each thing has changed consumer demand for fast credit, the main reasons for the decline in the fast credit industry could be:

  • Public sector regulation – One of the most important regulations could be the introduction of a solvency assessment of the Consumer Rights Protection Center. That is, lenders were required from early 2014 to request information on the lender’s payment history. There was also a stricter definition of what could and should not be displayed in a quick credit advertisement (interestingly, LNKA itself had asked a quick credit provider to cancel the advertisement). By the way, an increase in welfare and a rise in the minimum wage cannot be ruled out from the equation of why the fast credit market has shrunk.
  • Self-regulation of creditors – as early as 2013 the debt ceiling was set; customers could apply for “exclusion” from the list of creditors – 141 people chose to deny themselves access to credit with LNKA members because they could not control their borrowing habits.
  • Changes in consumer habits – consumers may also have begun to pay more attention to how and how much to borrow. It is clear that people are borrowing less, as loans taken out in money terms have fallen by 31%, while loans have fallen by 20%, meaning that those who have borrowed have also borrowed less. There is no denying that the public has been better informed about borrowing – last year’s “borrow wisely” campaign reached some 400,000 people in Latvia. As a result of this campaign, people may have begun to borrow more wisely.

The fast credit industry

The fast credit industry

As you can see, the fast credit industry is shrinking for a number of reasons. On the state side, it is regulation and simple welfare gains (unfortunately, fast credit is mostly used by low-income residents), while on the credit side, it is self-regulation, which does not explain the fall in demand. Demand on the part of consumers has fallen, which can mean both a decline in the relevance of the service as the standard of living rises and a better awareness of the population. Either way, the decline in the fast-credit industry is not uncommon, and while the industry has shrunk by almost a third, it has been tremendously bloated in years of crisis, as evidenced by lenders’ shares, where many wanting money someone is attracted to an interest-free loan.