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Using the Internet to Expand Microfinance in China

Chinese entrepreneur Chen Yuanyuan and her husband started a textile company that has been taking orders mainly from foreign clients on online commerce platform Alibaba.com. In the past, Chen tried various ways to fund her business, including applying for bank loans and asking for help from a client in Dubai. Her requests were all rejected because she had nothing to offer as security to guarantee her loan.

Chen finally reached a turning point for her firm when a friend introduced her to Ant Credit. “I submitted the application form within five minutes. The next day, Ant Credit’s staff called me to mail my documentation to its company headquarters in Hangzhou for a video interview,” she recalled. “It was so easy to borrow online.”

Financial services such as loans, savings, and money transfers help poor families and businesses build assets and increase their income. They also make them less vulnerable to economic stress. Yet, the microfinance sector reaches less than 20 percent of its potential market among the world’s 3 billion poor people.

 

To help address this gap, IFC has partnered with Ant Financial, an affiliate of China’s Alibaba Group, to use Internet-based financing to expand lending to more Chinese micro and small enterprises and women-owned businesses. 

 

IFC has provided Ant Financial subsidiary Ant Credit about 1.5 billion yuan ($245 million) in financing. The package includes 500 million yuan ($80million) specifically targeting women entrepreneurs through the IFC/Goldman Sachs 10,000 Women Women Entrepreneurs Opportunity Facility—the first of its kind dedicated exclusively to financing women-owned small and medium businesses in developing countries.

 

Ant Credit provides microloans to small businesses and individual entrepreneurs over the Internet. It evaluates potential borrowers’ creditworthiness based on transactional and behavioral data, such as timely delivery of products and settling of bills, which is gathered as they do business online. Ant Credit’s clients are mostly small businesses—more than half of which are owned by women—on Alibaba Group’s online marketplaces such as Taobao.com and Tmall.com.

Information that establishes creditworthiness, collected with the help of big data technologies and cloud computing, allow Ant Financial to lend without having to take securities and assets such as buildings or inventories as guarantees for loans. This lowers the threshold for loan disbursements and helps to provide financing to clients who previously stood no chance of obtaining loans.

Shortly after submitting her loan application, Chen Yuanyuan received a text message telling her that the company had approved a $67,000 loan. Her business has since grown rapidly, with its turnover now exceeding $8 million a year.