Consumers get a nudge with credit to spend more

The Chinese government wants its people to spend more and save less so it can become a consumer-driven society less dependent on selling exports to foreigners.

For that to happen domestic consumers need to be confident enough to spend more on TVs, laptops, mobile phones, motorcycles and other goods.

A central European company is playing a major role in creating a consumer finance industry so people have the money to spend.

PPF Group, the Czech financial and investment company operating through its subsidiary Home Credit, is the only foreign-owned company to be given a license in China to provide small loans.

It is offering average loans of 2,050 yuan ($322, 238 euros) available at 10,500 point of sale outlets across the country. The company has developed links with leading Chinese home appliance and electronic retailers like Gome and Suning and many other stores.

Pavel Vyhnalek, group chief executive of Home Credit Asia, believes offering such credit to consumers will make them more confident of handling debt.

"Our customers are ones that don't have any banking experience. If they use banks it is just for withdrawing savings," he says.

"If they use finance for small ticket items it will be part of their education when they later apply to bigger ticket items such as a car loan or a mortgage."

Home Credit China, which began operations in the country in 2007, has 3,500 employees and has so far provided 1.3 million loans.

Its customers are mainly young - some 80 percent are between 20 and 35 years old.

The company is one of the four companies, the others being Chinese, to be given a license by the China Banking Regulatory Commission (CBRC) to operate a consumer finance company.

It has a license to operate in Tianjin, the northern coastal city and is able to operate under a trust arrangement in other areas of the country, including Guangdong and Chongqing.

Home Credit is keen to operate nationally, however, and the CBRC is currently reviewing licensing arrangements.

"We are now in discussions with the CBRC and are awaiting what the decision will be as far as the consumer finance company license rollout will be," adds Vyhnalek.

PPF was established in 1991 by Petr Kellner, one of the richest men in the world with a $9.2 billion fortune, according to the latest Forbes list.

The 47-year-old who largely made his fortune out of the privatization of the Czech economy is the group's major shareholder.

The group is the largest privately-owned investment group in central and eastern Europe and owns a number of businesses including El Dorado, the largest consumer electronics retailer in Russia.

Home Credit has proved a major success and now operates in seven countries. It has 27 percent of the consumer market in Russia and some 21 million customers there.

The company believes it can play a major role in China, where migrant workers often save up for months to buy goods and have no access to credit cards that people in Western markets take for granted.

They often fall prey to loan sharks charging astronomical interest rates and who come knocking at the door if loans are unpaid."That is something we never do," says Vyhnalek. "A customer may get a text if a payment is overdue."

The key strength of the business and one of the reasons it has been granted a license in China is its proven track record of assessing risk in emerging markets, where there is little in the way of credit databases.

Home Credit can make loan decisions within 25 minutes while the customer waits at a point of sale and its "Credit Factory" in Shenzhen, where its back operations are based, can process up to 100,000 loans a day.