Jackson Cheung, co-founder and CEO of Youxin Financial, talks about how to leverage data analysis to help micro and small enterprises owners in a tighter regulatory environment
Micro and small enterprises (MSEs) as major employers in China, are a backbone of the economy. Despite their importance, limited access to financing still affects them. MSE financing is difficult, slow and expensive; thus authorities are drafting and enforcing policies to improve financing conditions for MSEs. On June 23rd, 2018, Chinese authorities released “Opinions on Further Deepening Financial Services for Small and Micro Enterprises”, looking to encourage financial support for small businesses as concerns of an economic slowdown and credit shortage rise.
By nature, MSEs operate in unfamiliar sectors and have less publicly available data, which leads to more information asymmetry, discouraging lenders. Besides lacking of good collateral and high bankruptcy rates, data insufficiency also prevents financial institutions from having effective programs to assess small business risks and conduct lending activities. With continuous technology improvement, especially in big data analytics, lenders can use more information to better evaluate MSEs’ operations and risks.
In addition to the traditional banking system, peer-to-peer (P2P) lending, designed to match individual borrowers and investors, flourished in China as regulators encouraged the application of financial technologies to expand services to MSEs and individuals. Some leading institutions, such as Youxin Financial, provide small-value inclusive financial information services for MSEs. By the end of March 2018, YouxinFinancial’s lending platform Renrendai had facilitated over $8.16 billion (RMB 54 billion) in loan principal and served over 13.9 million users. “In the last eight years, we focused on serving MSE owners and helping them go through difficulties while changing their lives, which gave us a sense of achievement,” said Jackson Cheung, co-founder and chief executive officer of Youxin Financial. The risks associated with MSEs are very high, but MSE owners are not highly leveraged and worthwhile clients, as they will begin new business ventures after previous failures.