Contxto – Lending fintechs in Latin America have been raising equity capital and financing rounds throughout 2020. Likewise they all take up the mantra of “democratizing access to financial services”.
Yet there is one significant problem that hasn’t been sufficiently addressed: How will fintechs procure loans to individuals and businesses who can’t prove a source of income in recent months? This is a predicament fintech, yotepresto.com from Mexico, is already facing.
The startup acknowledged that while the number of requests for loans has risen during the contingency, many users have been unable to demonstrate any form of income.
Why it’s a big deal: The time has come for many lending fintechs to put their money where their mouth is. To lend? Or not to lend? That is the question.
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Fintechs’ lending dilemma
The 15 to 20 percent rise in loan requests at yotepresto.com during the month of May is just part of the self-isolation aftermath. But for the startup the problem wasn’t the workload but rather understanding applicants’ unusual circumstances.
“What we’re seeing isn’t that people suddenly have terrible credit scores,” explained Luis Chávez, co-Founder and CEO at the fintech.
“However, we have noticed that when we ask for proof of income for April or May, many say ‘I lost my job’, ‘I don’t have a salary right now’, or ‘they lowered my wages’ and that’s what’s slowing down the authorization process a bit.”
Recently acquired fintech Omni Latam also reports to have seen an uptick in SMEs requesting loans. And banks have turned their back on them.
But what of fintechs?
For yotepresto.com, the next 18 months mean it will tread very carefully. In other words, it shall likely slow down the amount of financing it dishes out.
The bottom-line: Despite surges in demand for loans, that doesn’t imply startups will comply.
Each fintech will have to pick an approach to address the problem. They might do as yotepresto.com and reduce financing. Or perhaps they’ll delay outstanding credit due dates or renegotiate terms.
A lot of this will depend on their business model, how they evaluate a potential borrower, as well as their own financial health.
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