What does responsible lending mean at TAMGA Fintech?
Fintech company TAMGA has long promoted responsible lending in the market.
By definition, responsible consumer lending is tailored to the needs and allows to avoid excessive consumer indebtedness. Not just for the average and general, but for every consumer applying for a loan.
Fundamentally, such a definition is a requirement for any lender to refuse the pursuit of only their own benefits and to consider the interests of the recipients of their services. Responsible lending is therefore one of the basic and exemplary concepts of consumer protection. For many people with a post-socialist background and a certain allergy to social issues, such requirements sound utopian and unacceptable.
Why do we benefit from this?
At TAMGA, we propose to get rid of prejudices and try to understand why some companies are more strict with borrowers or debtors: they try to grant a loan to everyone, and then find it equally hard to recover it, while TAMGA introduces responsible lending requirements in its products. Also, why it is profitable for us, as such steps reduce credit costs, have a positive impact on the financial well-being of citizens, and stimulate economic development in the countries where TAMGA is developing its products.
Negative credit practices result from reasons on the part of both lenders and consumers. The pursuit of profitability can lead lenders to grant loans that are highly likely not to be repaid and will cause significant harm to consumers. In this way, profits will be achieved from both the high value of all granted loans and income from the collection of overdue debts.
Consumers may make credit decisions with a high probability of future insolvency due to a lack of understanding of terms, confusing loan conditions, a tendency towards optimism and short-term thinking, and other biases. Financial education and literacy can reduce the impact of these causes, but cannot eliminate them. Understanding this and analyzing the reasons for clients' delays, TAMGA experts worked on the development and implementation of responsible consumer loans in their products in accordance with the recommendations of the World Council for Financial Stability. In 2011, the Council acknowledged these efforts as justified and supported companies that implemented them.
In a broad sense, responsible lending encompasses the entire cycle of the lending process from advertising to full repayment and includes 7 elements, the key ones being the verification of sufficient creditworthiness and ensuring that the loan terms meet consumer needs (appropriateness). In this sense, responsible lending in the EU became a universal requirement for all banks and financial companies in May 2020.
In our credit products, we thoroughly analyze the creditworthiness of borrowers. However, this does not mean that we are obliged to refuse a loan if there is no evidence of sufficient creditworthiness. This is exactly what responsible lending is about. In every individual case, the consumer must be convinced that they are able to repay the loan without financial difficulties in the future. In TAMGA, this approach resembles the ethical principle of "do no harm".