Summary: In this article, we discuss the state of microlending for Migrant Domestic Helpers in Hong Kong, opportunities and risks of microlending to the MDHs, impact creation and factors for impact ventures to consider when entering the market.
Fintech is revolutionising microlending. People who are unable to obtain loans from mainstream banks can now borrow money in small amounts through technology. One such group in Hong Kong, about 370,000 strong, is the migrant domestic helpers (MDH). Many fall prey to predatory or even illegal lenders that charge painfully high interest rates and engage in illegal collection practices. Bringing formal, transparent, and ethical microlending for migrant domestic helpers has become a pressing issue.
What is microlending? Microlending transformed by Fintech
Microlending presents a huge opportunity for fintech and impact ventures. It opens the door to new market segments, and creates far-reaching social impact with relatively small financial investments.
The success of several microfinance institutions across the world is testament to the fact that lending to bottom-of-the-pyramid and other vulnerable communities, can be profitable and caring at the same time. It is well-known that MDHs are able to send a considerable and steady stream of remittances back to their home countries. However, they continue to be marginalised by formal banking systems. Only a small percentage, about 18%, even have bank accounts in Hong Kong.
Of course, the microlending models can only be successful if they truly understand the issues and the needs of their customers. Deploying radically innovative solutions and having their heart in the right place are also vital factors. For the MDH community in Hong Kong, which only gets Sundays off, which is a bank holiday, partly explains their low access to banking services. Gaps in language and financial literacy, a lack of credit history and lack of assets to collateralise loans, are some other hurdles they face in dealing with traditional banks, that need to and can be addressed by fintech solutions.
Fin-tech solutions not only bring access to finance for MDHs, but also reduces operational costs for the lender. Innovative big data and AI solutions are being used to harness the power of non-traditional data for developing specialized credit scoring models for this market.
Existing microlending products
We are already seeing lenders extend customised products of microlending for migrant domestic helpers. This table shows a comparison between Good Financial and selected money-lenders in Hong Kong:
| UA Finance Overseas Workers Loan 2021 | DLO International Credit Limited | Prime Credit | Good Financial | |
| Application method(s) | Online, UA Overseas Workers Loans hotline or visit branches in person | Online or in-person, money to be distributed through “DLO International Card” | Only Online | Via the Good Financial app on phones |
| Eligibility | Filipino & Indonesian domestic helpers in Hong Kong with a valid HKID card | Filipino domestic helpers with a valid HKID card | Domestic helpers with a valid HKID card | Domestic helpers in Hong Kong with a valid Hong Kong Identity (HKID) card |
| Document(s) required | Passport, HKID and Employment Contract | Online application form and additional documents as required | HKID, passport, employment contract, Visa, and address proof | Passport, HKID and Employment contract |
| Repayment | UA Branches | Cash Deposit (in Hong Kong only) & Cash and cheque deposit to local banks named United Coconut Planters Bank: and Maximum Savings Bank, Inc (in the Philippines only) | 7-eleven (in Hong Kong only) and payment to a local bank named Banco de Oro (in the Philippines and payment in the Philipines Peso) | 7-eleven |
Microlending is an opportunity for impact ventures
Impact ventures that have the interests of the helper community at heart, have a meaningful opportunity to create a financially viable and an impactful solution. The scope for microfinance solutions / microlending for migrant domestic helpers extends beyond just microlending. It also includes remittance services, savings products and micro-insurance services.
In terms of the financial returns, micro-lending solutions for migrants are scalable to the large, and growing, migrant population globally. Evidence from remittance data (see chart) shows that migrants’ cash flows have been fairly resilient, after a brief dip in 2020 linked to COVID-19. This indicates strong financial viability for lending to this market.
As for impact generation, accessible and ethical Micro-lending solutions work towards achieving a number of SDG goals (see chart).
Microlending impact ventures can significantly change the money lending landscape, through financial inclusion, lowering interest costs for entire market segments, meaningfully reducing the power of predatory and illegal money-lenders and lowering financial pressures on vulnerable communities.
While impact measurement models are still developing, several metrics and models are used to assess the positive impact of microfinance. Outreach assessment, Social cost-benefit analysis and social return on investment (SROI) are among the popular models for MFI impact assessment.
60 Decibels, an impact measurement company working on developing a Financial Inclusion Index, sees the following key categories for MFI’s impact assessment: (1) increase in financial access; (2) resilience in dealing with future unforeseen life events; (3) building financial knowledge of its client base; (4) creating household impact and (5) creating business impact.
Risks for microlending impact ventures
The first risk that comes to mind when thinking about microlending is the credit risk involved. Credit risk assessment is complicated by limited tracking of the client’s credit history and of their use-of-loans. When lending to a specific demographic, in this case the MDHs in Hong Kong, the portfolio will also be severely exposed to major disasters in SE Asia or to an increase in helper unemployment (as witnessed during COVID).
Regulation risk is a major consideration. For example, Chinese regulators severely cracked down on online microlending apps, as their fast growth threatened overleveraging vulnerable communities and also wider financial stability.
A third significant risk is related to data privacy, as app-based microlending credit models often collect private phone data to analyse and track borrower behaviour. “Input bias” when feeding customers’ information into AI models is another that risks that can lead to discriminatory customer treatment and unexpected increase in credit risks.
Interested in microlending? What should be considered?
Prospective microlending impact ventures should consider the following issues for sustainable operations:
Potential partners for business collaborations: Microlending impact ventures need to work with a range of businesses to overcome challenges specific to lending to domestic helpers. For example, 1) partnering with convenience stores and traditional bank institutions to make it easy for borrowers to repay their loans using cash, 2) Partnering with banks, other fintechs, or setting up access in helpers’ home countries, where they might need to travel to at the end of their employment contracts or for special needs
Potential partners for impact creation: these include employment agencies, non-governmental organisations, and diplomatic missions. These can facilitate impact ventures to fulfill their missions through providing various types of support such as financial counseling to help domestic workers to make informed decisions.
Personal Communication: It requires impact ventures to communicate their policies (i.e. loan specifics and data to be collected) to domestic helpers in easily-understood terms. The impact ventures’ customer services are equally important to ensure that domestic helpers can get their inquiries answered at the earliest moment possible.
Data privacy: impact ventures need to think thoroughly about their data collection policies and effective execution to protect customers.
Conclusion
The fintech revolution can bring life-changing micro-loans and other financial products to migrant domestic helpers in Hong Kong, who are often unbanked. While this segment presents significant opportunities in developing the financial new market segment, it requires innovative solutions to deal with challenges that come with microlending. To make a difference in the microlending market, we recommend having clarity on the goals of your business and being able to clearly communicate policies to the customer base and partnering with a range of business and impact partners to achieve these goals.
