2019-02-19 debt collection spotlight - Asia

ASIA, as continent is observing a dramatic increase of provided financial services. Financial groups as Home Credit (Czech republic, valuation...), Akulaku (China, valuation...), Finstart (Russia, valuation ....) or even groups of young enterpreneurs from Europe raising initially 200,000 to 500,000 EUR come to makerts like China, India, Indonesia, Philippines, Vietnam, Thailand, Malaysia, Kazakhstan, Bangladesh or Sri Lanka and change the paradigma that was true for thousands of years. Billions of people are raising out of poverty and are seeking a resource of capital to purchase.

MAP

GRAPH of consumer market

Amount of transactions in Asia

Simple consumer lending products provided online - payday loans - make difference in everyday life. Without this source of financing young generation in Asia doesnt have ability to purchase new cell phone, pay for education or even purchase clothes on internet.

NPL ratio - in this kind of lending is very much influnced also by lost opportunity - as liquidity of this companies is critical factor to earn more money. Charging of interest is stopped 30 days overdue, DPD60 ratios are around 15% and contactability of the debtors stays as issue. Fortunately the new sources of additional points of contacts are growing:

Whatsup, Facebook, Messanger, Contact list, Bank statements, References, Viber, Autobeeper, Employers, all are critical sources.

In Asia community means a lot. Family as community, colelagues as community, friends as community, face on social media.

Collection details change country per country, as to respect a local traditions is critical. Understanding of English is not a problem anymore for management, even team leaders are willing to learn.

Critical is the communication with authorities, as they understand their obligation to protect the consumer. And they enforce on behalf of consumer consumers rights, therefore you will not usually expect legal cases to be held with lawyers of consumers, but dealings with local reserve banks or other supervisory organisations.

Generally the concept of collection as we know from western countries is new to Asia too. Therefore it is not, in this moment, advisable to create joint ventures. It takes a critical amount of time to prove to partners that the new way of collection works, that field part is not the most critical part of the process (but shall be not forgotten).

Generally portfolios you touch can be devided to two parts:

A) unsecured
B) secured

As the enforcability of law in Asia is low it makes lower sense to purchase thousands of loans secured by vehicles, even in some cases properties. Reason being is the limitation of ownership of such properties by foreigner owned companies and the length of whole process. On the other side you may see portoflio sales of bigger property units, as the amount of legal work is very focused.

Unsecured loans, or loans where security is counted as supporting, but not main portfolio evaluation factor are more interesting. Electrity bills, credit cards, phone bills and other are opening an increasing opportunity.

Collection of such portoflios depends on your experience in simmilar portoflios on respective markets. It is a good habit not to implement the high-tech collection methods, as AI or machine learning. Reson being collection is made in rupiah, pesos or juans. It is better to have rupiah, pessos or juan costs and only keep an expected returns to investors.

As the whole journey of opening of collection business is getting more straight forward and portoflios grow it is now a great time to consider Asia.

2019-09-01 debt collection USA

Debt collection in USA is being devided to two different approaches, as described on the picture above. The new, non-traditional approach is to get the debtor to the position of himself being actively communicating with collection agency without any initial call or bigger activity by the agency.

The whole idea behind it is to add additional capacity to collection process and allow debtors to keep being motivated to communicate. It is becoming a process of communication on both sides, where debtor is being accessed on regular basis with communication about his capability and willingness. 

2019-09-01 financial markets India (update)

Current developments in India are pretty challenging. 10 state owned banks are being merged to only 4, totally of 8billion USD recapitulation is happening. To it slowing growth to 5% yoy basis, weakening rupiah and thus everything only 2,5 years after demonetization o 80% of currency base in November 2016.

Is India again asking its middle class to cover the policy mistakes? Why have been state owned banks allowed to approve so many bad loans? Current talks of bankers protesting against the move, even they did approve loans in first place.

Maybe India is not on the verge of change to different India. Maybe it keeps the same, as it always had been. A great country to those who export, who live from lower labor costs and those with good connections to banks for loans that make no sense. Without taking responsibility. Making top 0,1% richer and let 99,9% to pay?

2019-08-29 P&L and lending company

Starting a lending company is one, sustaining it is second. Few regulators in Asia and USA understand the challenge, as the process is the same. By the end what matters is:

a) *portfolio income* - that composes of interest, fees, penalties, late charges and other income like merchant repayments (f.e. in a credit card business), marketing income (selling aggregated data or data from source), other income from cross selling and so on

b) *portfolio provisions* - following the performance of the portfolio in previous months.  It is important to have a proper write-offs setup (as portfolio shrinks and therefore provisions are lower, usually 180 days after DPD)

c)  *cost of funds* - where is calculated not only interest paid to depositors, but also costs connected with transferring the costs (tax, withholding tax, bank fees, ....)

d) **net lending result** - has to be maintained positive, as this is allowing company to sustain costs, otherwise they to be supplemented by strong enough own equity (own capital, funds, convertible notes, profits/losses from previous years...)

e) *administration costs* - to run the whole operation including of employees, rent, sundries, travelling costs and so on. It is challenging for company to keep them low, as every process could take 5 or 10  people depending on atomization, processes, management responsibility, enforceability and motivation

f) *depreciation* - is used for long term investments that decrease in value like computers, hardware, software,.....

g) *write-off* - of DPD 180 loans enetering that partical month

h) *sale of portfolio income*

i) *marketing costs*

j) **operating profit or loss** - is the good indicator of the general position of the company. Sometimes it is interchanged by EBITDA - CAPEX.

k) financial costs - from running business
l) financial costs - from exchange

m) ***profit or loss before taxes***
n) ***profit or loss after taxes***

Keeping the track of each item & following the pattern allows the lending company to seek the perfect stage. Cost of funds for such a company could be from 2% in bank to 35%+WT+Bank charges+local income tax a year for a startup. As it is 17.5x more expensive for a startup in lending to borrow money it is a good decision to make a proper management decisions and follow mitigation of risks and volatilities.

2019-08-29 P&L and lending company

Starting a lending company is one, sustaining it is second. Few regulators in Asia and USA understand the challenge, as the process is the same. By the end what matters is:

a) *portfolio income* - that composes of interest, fees, penalties, late charges and other income like merchant repayments (f.e. in a credit card business), marketing income (selling aggregated data or data from source), other income from cross selling and so on

b) *portfolio provisions* - following the performance of the portfolio in previous months.  It is important to have a proper write-offs setup (as portfolio shrinks and therefore provisions are lower, usually 180 days after DPD)

c)  *cost of funds* - where is calculated not only interest paid to depositors, but also costs connected with transferring the costs (tax, withholding tax, bank fees, ....)

d) **net lending result** - has to be maintained positive, as this is allowing company to sustain costs, otherwise they to be supplemented by strong enough own equity (own capital, funds, convertible notes, profits/losses from previous years...)

e) *administration costs* - to run the whole operation including of employees, rent, sundries, travelling costs and so on. It is challenging for company to keep them low, as every process could take 5 or 10  people depending on atomization, processes, management responsibility, enforceability and motivation

f) *depreciation* - is used for long term investments that decrease in value like computers, hardware, software,.....

g) *write-off* - of DPD 180 loans enetering that partical month

h) *sale of portfolio income*

i) *marketing costs*

j) **operating profit or loss** - is the good indicator of the general position of the company. Sometimes it is interchanged by EBITDA - CAPEX.

k) financial costs - from running business
l) financial costs - from exchange

m) ***profit or loss before taxes***
n) ***profit or loss after taxes***

Keeping the track of each item & following the pattern allows the lending company to seek the perfect stage. Cost of funds for such a company could be from 2% in bank to 35%+WT+Bank charges+local income tax a year for a startup. As it is 17.5x more expensive for a startup in lending to borrow money it is a good decision to make a proper management decisions and follow mitigation of risks and volatilities.

2019-07-12 Doing business in California

To start to do business in USA it a good choice for a small research and few meetings with business community. Ability to turn your team in to the sales is a critical skill u would need, as people specialize here a lot.

And once u sense few questions about what u do and why. Work on your webpage, LinkedIn and other presentation. U will be checked :)

And in the end dont forget to open company. It is 1500 USD plus 400 for mail scan & pickup with address in California / LA city. U would need that, otherwise u discuss but no sales. Establish corp, not LLC. LLC is connected to your personal taxes. Corp is not :).

2019-06-17 importance of audit & misunderstanding

It might be argued, especially in a small and medium size companies, that audit is a necessary evil, something that slows down operations, costs money and have little, if any value added.

It is very well far away from what audit means and that it is not a final step, but actually a tool to something more important. Tool to sit down and work with the outcome be fore it is being finalized and understand the meaning of it, signals it sends and interested parties in company to set their position. Finalized audit provides basic financial numbers together with additional information carved in the stone.

Every company shall look on the financial numbers and a set of information it provides to its stakeholders, investors, employees, CEO, management, shareholders, government, banks and suppliers.

We shall, therefore focus at least on following:
a) own capital of the company
b) equity of the company
c) CAPEX
d) EBITDA
e) turnover
f) profit
g) value added
h) AR to turover
i) AP to turnover
j) if the audit is qualified or unqualified and why
k) changes in the company management

and others.