Alternative lending drives labour productivity in the emerging markets

According to the company analysts, that can be explained by the different ways for the segments to affect the economy. On the one hand, the developed banking sector facilitates the inflow of investments accelerating economic growth. Still, there is always a possibility that investments may be ineffective and not lead to an increase in production. On the contrary, alternative lending has little impact on investments but stimulates the economy through labour productivity. The reason is that non-bank lending companies provide more specific-purpose financing.

“As a rule, borrowers spend the received financing in the most important sectors of the economy, primarily using services of micro, small and medium-sized enterprises. These funds help companies increase capacity and returns. Moreover, when small entrepreneurs take credit from a non-bank lender directly, they need to prove business efficiency. In this sense, their results may even significantly outperform the results of large companies developing at the use of bank loans,” – analysts said.

Although alternative lending companies have historically offered higher interest rates because they bear more operating expenses to service small amounts, micro loans have proved their benefit both for individuals and the overall economy that includes consumption smoothing.