Comparing Loans in the USA, Europe and Other Developing Countries
The market for microfinance organizations is actively developing in almost all countries of the world. Perhaps the rapid growth rate of this branch is associated with a high demand for payday loans. But in order to compete with traditional banks, MFIs have to be as effective as possible. For this, companies are actively introducing new technologies, including data analysis and processing algorithms.
Previously, European countries were leaders in the financial sector, for several centuries systematically developing their banking services, but now the rapid development of the Internet and the market for mobile gadgets has contributed to the emergence of strong players in less developed countries.
Of course, in the West, the general level of financial literacy among the population is higher, which can be explained by a number of reasons. For example, in Europe and the USA, the population is a tax operator. People are used to counting their money and reporting to the state on their own. In other countries, part of the tax deductions falls on the shoulders of employers, who deduct them from the employee’s salary before they are credited to the bank card.
On the one hand, this option is convenient for the employee, but at the same time, many people do not realize their role in the formation of the country's budget, as a result of which they are not so closely monitoring the effectiveness of spending these funds by the state.
On the other hand, some people are quite frivolous about their own personal or family budgets. Due to the low level of financial culture, some citizens often misuse loans, turning them into long-term and extremely unprofitable loans. Therefore, there is nothing surprising in the fact that a convenient financial instrument has gained negative fame in many countries. However, the situation is gradually improving, and more and more people who use MFI products for their intended purpose are satisfied with terms.
Now the main obstacles to the further development of the market are connected with the actions of the legislative bodies. So, more recently, an initiative group of some countries advocated the liquidation of MFIs, deciding that such a measure would reduce the crime rate in the country. In their opinion, the main problem of MFIs is that the presence of large debts encourages citizens to commit offenses in order to pay them off.
Interestingly, the opposite trend was found in the USA: with the development of the MFI market, the level of offenses related to robberies and thefts decreased.
Thus, the only factor limiting the process of introducing financial technologies in developing countries now is the administrative barriers associated with the inertia and imperfection of the legislative system. But even this does not prevent such country from entering the top three of the fintech industry leaders.
Despite some differences in legislation, the working conditions of MFIs in the USA and Europe are almost similar. Moreover, the rules for borrowers in these countries are somewhat milder than in developing countries. In the West, almost any resident can get a loan: just register in PayPal, which enjoys increased confidence from lenders and is used to carry out the procedure for issuing funds. The use of this system, however, imposes some limitations in terms of the repaying loans.