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

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 to provide people with capital to spend.

PPF Group, the Czech financial and investment company that operates through its subsidiary Home Credit, is the only foreign-owned company to be given a license to provide small loans in China. It is offering average loans of 2,050 yuan ($322) available at 10,500 point-of-sale outlets across the country. The company has developed links with leading Chinese home appliance and electronic retailers such as Gome Electrical Appliances Holding Ltd, Suning Appliance Co Ltd 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 said. "If they use finance for small-ticket items it will be part of their education when they later apply for 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, with some 80 percent aged between 20 and 35 years.

The company is one of the four outfits, 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 the northern coastal city of Tianjin and is able to operate under a trust arrangement in other areas of the country, including Guangdong province and the municipality of Chongqing. However, Home Credit is keen to operate nationally, 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," added Vyhnalek.

PPF was established in 1991 by Petr Kellner, one of the world's richest men 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 LLC, Russia's largest retailer of consumer electronics.

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 the 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, but a customer may get a text if a payment is overdue," said Vyhnalek.

The key strength of the business, and one of the reasons it has been granted a license in China, is its proven track record in 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.

"We have been in Russia for more than seven years and have collected sufficient data, so we can offer a different price to customers based on individual scoring," said Vyhnalek.

Home Credit plans to work in China with Tesco PLC, the UK supermarket chain which is now one of the biggest foreign retailers in the country.

It has linked up with Tesco in the Czech Republic, assisting it in providing personal finance products in stores, including loans and credit cards.

Lucie Hadaricova, financial services manager of Tesco Czech Republic and Slovakia, said one of the problems of developing the business in China is that no single company had a nationwide consumer-credit license. "We could replicate our Tesco Financial Services brand in China and it is under discussion. The final decision will be taken locally," she said.

Vyhnalek said organized gangs tried to defraud the company when it was first launched in China, but by the end of last year fraud levels had been drastically reduced. At present the company approves 80 percent of loan applications in China and opens 1,000 new point-of-sale locations every month.

"The government in China sees the development of consumer finance as one of the key drivers in boosting domestic demand in the country," he said.

China Daily

(China Daily 12/03/2011 page10)