Jack Ma (File photo)

NEW DELHI: Jack Ma 's changing the way China lends to small businesses. His four-year-old MYbank has lent 2 trillion yuan (Rs 20.02 lakh crore) to nearly 16 million small companies, which had been shunned for decades in favour of state-owned giants. Borrowers apply with a few taps on a smartphone and receive cash almost instantly if they're approved. The whole process takes 3 minutes and involves zero human bankers. And the default rate so far? About 1%.

China is quickly becoming a world leader in the use of big data and AI technology to make loans. That's because among the country's biggest advantages is the more relaxed approach toward privacy than many other jurisdictions. And the biggest data trove may come from payments providers like the one operated by Ma's Ant Financial — MYbank's biggest shareholder. After obtaining authorisation from borrowers, MYbank analyses real-time data from payment systems, social media and other sources and a risk-management system that analyses more than 3,000 variables to gain insights into creditworthiness.

Add to this, the loan approval rate at MYbank is four times higher than at traditional lenders, which typically reject 80% of small-business loan requests and take at least 30 days to process applications. And it's not just MYbank, which earned 670 million yuan last year. Units of Tencent Holdings Ltd and Ping An Insurance Group Co both have been using technology to boost small-business lending, while state-owned China Construction Bank Corp is ramping up its presence in the space.

While keeping defaults in check may prove more difficult as China's economy slows, all signs indicate continued growth in small-business lending. In February, the banking regulator called on state-owned lenders to boost credit to small companies by at least 30% this year. About two-thirds of the country's 80 million small businesses lacked access to loans as of 2018, according to China's National Institution for Finance & Development.

