TIME: 30 March 2021 15.00

PLACE: ONLINE (Teams)

Abstract: 

Payday lenders offer small, uncollateralized, and very short-term consumer loans with three-digit APRs. Even amid high borrowing costs and the reputation of predatory lending practices, the demand for these non-bank credit products is surprisingly strong around the world and raises ongoing debates on how to restrict indebtedness and/or price levels in this controversial subprime market. Although there is now a relatively large body of empirical literature which sheds light on the incentives and outcomes of the payday demand-side (households’) behavior, little is known about the supply-side (lenders’) risk-return trade-offs, financial stability, and the overall business model. The common barrier for such investigation is data availability, as payday lending firms provide either limited or non-publicly available information about the details of their operations and financial statements. In this study, I utilize comprehensive industry-level and firm-level financial data on large Russian microcredit firms to study the details of their payday lending (PDL) activities; capital, credit and funding risks; and operational expenses and profit margins. The results of this study also provide early insights on how the PDL industry adjusts to a series of large-scale regulatory shocks, including price and indebtedness caps and the real world stress-test that is the COVID-19 pandemic. I also document how increasing reliance on fintech and online lending channels affects the payday lenders’ costs, outreach, and financial performance indicators.

 

Online Research seminars organized by the Bank of Finland's Research Unit are open to all researchers interested in the subjects covered. Those wishing to attend a seminar are kindly asked to register in advance.

 

Read more and find the online registration form: BOFIT online seminar - Risky lending or risky borrowing? (bofit.fi)