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Payday loans increasingly popular

Published:Sunday | July 10, 2011 | 12:00 AM
Jacinth Hall-Tracey managing director, Lasco Financial Services Limited.

Lasco Financial Services Limited says its payday loan portfolio has quadrupled in the past eight months - surprising the company, whose target had been a more modest 30 per cent growth over the medium term.

The loans, which are popular because of the liberal qualification criteria, but are also among the most expensive debt to acquire, are most often sought by micro entrepreneurs.

Lasco Financial's managing director, Jacinth Hall-Tracey, says her market target is professionals who are offered rates of 52 to 78 per cent. The default risk is managed by ensuring repayment through salary deductions.

Lasco Financial's payday portfolio is about J$20 million, says Hall-Tracey, who estimates that the total market is about J$500 million.

Access Financial Services is seen as the market leader.

But Lasco Financial, which estimates that its payday business is about one-fourth of Access Financial's, says it is determined to close the gap through new products aggressively pitched at office and other workers.

The company has rolled out a motor vehicle loan "at market rates", and will soon add an education loan product.

But Hall-Tracey, even as her company is benefiting from the upswing in demand for accessible loans, cautions that the payday credit line, which is a service delivered to targeted clients in their place of employment, can become a habit, and as such, should be used with restraint.

"They are very accessible and can indeed assist persons with emergencies. However, they are very addictive and can create an environment of heavy consumption," she said.

"From a business point of view, they require astute credit practices as they are unsecured loans."

In the final quarter of 2010, Lasco Financial developed a more aggressive sales strategy for the payday loan plan, which involves the deployment of sales staff to service subscribers at their place of employment.

Qualifying criteria include full-time employment and the capacity to repay by salary deduction for a one per cent per week, or 52 per cent per annum loan.

Borrowers with a lower credit rating and who require guarantors pay 1.5 per cent per week, or 78 per cent per annum.

The repayment period is nine months, and Lasco has set the debt-service limit for qualifying applicants at 30 per cent of take-home pay.

"We have indeed quadrupled our numbers since November, growing our portfolio by 200 per cent," Hall-Tracy said.

"Our strategy for our payday loans roll-out to the public is specific targeting. We recognise that we are in a very competitive environment, and while we want to grow our numbers aggressively, this is our preference."

austanny@yahoo.com