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  • The paradoxical effect of the COVID-19 pandemic on the debt collection market in Asia

The paradoxical effect of the COVID-19 pandemic on the debt collection market in Asia

Viktor Vodenko, the Global CEO of MBA Consult Group shared his vision of the pandemic impact on business and development of the debt recovery market in Asia.

The current economic crisis will soon completely change the paradigm of perception of the debt collection business in Asia and boost the formation of a civilized debt collection market.

The COVID-19 pandemic, lockdown, restricted movement, plunging income, rising debt load is a harsh reality that has affected all inhabitants of the planet. All these matters have already brought many of the world’s economies into a deep crisis. The same trend prevails in Asia – many restrictions have not been lifted yet, but it is already clear that the economy is experiencing a heavy storm, which will inevitably affect ordinary people, primarily, the least protected groups of the society.

We are talking about more than a quarter of the Southeast Asian population who lives on less than $3.2 a day, according to the World Bank data.

Closure of numerous enterprises, especially in the service sector, has led to a serious drop in the real earnings of the population, especially for low-income people. At the same time, the economic paradigm of recent years – consumer demand growth, as one of the main factors of economic growth – has led to an excessive indebtedness of households. Now, in the face of falling income, the serious credit load has led to an equally significant increase in overdue debt. Today, we see only the tip of the iceberg.

It is still unclear how to escape from this situation. Many governments and legislators will continue to puzzle over the ways to support the economy and ordinary citizens who faced the difficulties. Different countries apply various targeted measures to uphold small businesses and population: subsidies, financial aid, deferral of taxes and mandatory contributions, requests for credit organizations to provide grace period. These measures are designed to reduce stress level among the low-income population and give people an opportunity to survive the crisis and quarantine months with a minimal comfort. However, one thing is clear: there will be much more debts and it will be necessary to work with them.

Responsibility for the financial stability of a large population group will indirectly fall on creditors. Therefore, the ethical debt collection and professionalism will become a priority.

It is clear that demand for the outsourced debt collection services will expand rapidly. At the same time, oddly enough, not many debt collection agencies will be able to survive this crisis, despite the galloping growth in demand for their services.

In the nearest future, debt recovery market will attract a lot of attention from politicians and regulators due to the influx of debts. We foresee changes in legislation relating to acceptable ways and methods of work with debts. In the coming years, regulation will also become more stringent: it will centre on the consumer of financial services. State authorities will focus directly on the process of working with borrowers. Unscrupulous debt collectors, these are often small regional agencies that mostly specialize in field debt collection and account for more than 80% of complaints, will be forced to leave the market. Larger players will also have to rework their standards and practices, shifting from applying pressure to debtors to improving their financial literacy and finding ways out of financial difficulties. Credit organizations will have to carefully choose partners for outsourcing services and cession purchasing.

Development of distant debt collection services with careful control over the operators’ work will receive an impetus. Automatic work tools will be introduced everywhere: robot-collectors, predictive calling systems and other channels of communication based on the use of Big Data and artificial intelligence (AI). The approach to legal debt collection and bailiffs’ work will also be revised and improved. This will trigger development of integration with state authorities, which always requires additional investment. Therefore, the only market players to survive are those who will be able to quickly respond to this transformation of business into online, prepare the appropriate infrastructure, ensure the security of communication channels so that the quality of debt collection process will not be compromised, and implement the principles of truly ethical debt collection.

I am confident that in the near future the paradigm of perception of debt collection agencies in the Asian region will change completely.

While in the Western countries, the model of interaction with debt collectors has been established long ago, same as the default strategies of banks and fintech companies – to provide portfolios for outsourcing and to sell non-performing loans (NPL), in Asia on the contrary, the model is only being formed. In crisis times, this process will probably take much faster. In the market, there already are big international debt collection agencies (such as MBA Consult Group) with many years of experience, well-established processes and infrastructure and clearly observed business standards and norms. These companies are now actively supporting their partners by purchasing portfolios of NPL and thereby helping to improve their liquidity during this challenging period. Inevitably, the next step will be to create associations of professional debt collectors and develop common standards and norms for dealing with overdue debts for both debt collectors and the entire financial market.

These measures will help to get away from the image of a collector-mobster who threatens debtors and shift to the image of a financial adviser who can help any debtor to find the best way out of his specific debt conditions. Right now, there is a rethinking of this image. The market is becoming more civilized. This will greatly support common people who are in a difficult situation and reduce social tension. I am sure that this evolution of the debt recovery market will lead to the evolution of the entire financial system: its reinterpretation and financial recovery of the society.

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