Whilst many Zimbabweans are getting used to the idea of sending or receiving money through plastic cards or mobile phones, a Russian billionaire has revolutionarised electronic money by running slot machines which loan out money, instantly.
Oleg Boyko made a fortune running slot machine halls, before President Vladimir Putin banned gambling in 2009. Now, through SMS Finance an affiliate of 4finance Holding he operates the micro loan ATMs at railway stations and shopping malls around Moscow, with plans to branch out to Spain and Poland next.
By: Gody Jokonya.
The strange bright orange machine which looks like any ordinary ATM is designed to accept loan applications and spit money on the spot.
One just has to scan their passport, pose for a photo and enter their mobile phone number. A confirmation text message will be sent to their phone a few minutes later and Voila!, you are withdrawing the money you need.
The ATM contains software that matches a photo taken by the machine with one on a passport to verify customers’ identities, which help the company evaluate each applicant’s creditworthiness within 15 minutes.
Since launching the product last year there are about 20 automated loan machines installed throughout Moscow. They allow customers to request as much as 15,000 rubles ($ 241) which must be paid back in 20 days or less. The interest is 2 per cent a day amounting to 730 percent on an annualized basis. Steep it may seem, but Russians have embraced the technology to make ends meet in-between paychecks.
For many it is the only way to borrow as Russian banks have less cash to lend and are tightening client scoring procedures to avoid bad loans following the plummeting of the value of the ruble late last year. It’s up to the gambler to stomach the risky consumer loans in such an economy.
According to late last year’s Daily News report, Zimbabwe Association of Microfinance Institutions (Zamfi)’s Patrick Mangwendeza said the micro lenders’ interest rates were higher than banks “due to the nature of loans offered. We deal with very small loans, but the numbers are huge. As such, the costs of managing small loans are very much higher compared to banks”. Nonetheless payday lenders are characterized as vultures feeding on the vulnerable.
“The absence of strict regulation allows micro-loan companies to provide options to people who would be passed over by the traditional banks,” says Kieran Donnelly, the chief executive officer of 4finance.
Over 11 million loan applications have been submitted, with approximately €831 million ($944 million) disbursed to people across Europe who accessed 4finance’s loans through websites via computers and phones. Upon realizing that many potential customers may not have access to the Internet or trust it with their banking information, SMS Finance began working on the ATMs.
When a loan repayment is due, a customer can settle it at a local bank, an electronics store, online or by using a digital payment system such as Qiwi or Yandex.Money. If someone tries to skip out on paying, company representatives send e-mails, text messages and phone calls. After two to three months of chasing a customer, they may involve debt collectors. About 10 percent of borrowers default on their loans, but the company is recovering over 55 percent of overdue debt, says Donnelly.
Donnelly says, “Our objectives are about profitability and return on investment. A big part of what we are offering to people is convenience,” whilst revealing plans for the company to hold an initial public offering as soon as 2016.