Are Amazon and Alibaba replacing banks as lenders for small businesses?
Since the banking crisis of 2008, financial institutions have found that borrowing large sums of money from the Fed and then simply buying U.S. Treasuries has been much more profitable and less risky than lending it to businesses. ¬†And as a result, the amount banks used to lend to companies, especially those categorized as small businesses, have declined by between 20-30%, leading many of these Mom and Pop operations to close their doors to the tune of 170,000 between just 2008 and 2010 alone.
And even in 2017 with the Fed having pumped tens of trillions of dollars into the financial system over the past nine years, very few banks are lending money to small businesses to try to grow the economy. ¬†And as a result the vacuum for providing capital may be coming from two interesting new sources.
The American e-commerce giant Amazon has announced that for the last 12 months the company has loaned $1 billion to small businesses.
More than 20,000 small businesses in the US, UK, and Japan have received a loan from Amazon. The company says businesses can apply for loans ranging from $1,000 to $750,000.
“We created Amazon Lending to make it simple for up-and-coming small businesses to efficiently get a business loan because we know that an infusion of capital at the right moment can put a small business on the path to even greater success,”¬†Amazon Marketplace VP Peeyush Nahar said. – Russia Today
And it’s not just Amazon who is getting into the lending business, but also their biggest rival over in China who sees the creation of small business the key to growing their own platforms in the e-commerce sphere.
An Alibaba-backed private lender said on Monday that its focus on providing financial services to clients who are underserved by traditional banks has resulted in billions in loans to small businesses and individuals over the past eight months.
E-commerce giant Alibaba holds a 30-percent stake in MYbank through its financial arm, Ant Financial. MYbank said it has lent a total of 45 billion yuan (around $6.88 billion) to farmers, merchants on Alibaba’s online marketplace, restaurant owners and mom-and-pop stores, extending loans to 800,000 borrowers that have trouble accessing financing through traditional banks.
In the eight months since it opened for business last June, MYbank’s loan balance has grown 30 percent each month on top of a client base that has been expanding 12 percent for the past five months. – China Daily
Ever since the 2008 financial crisis, the traditional banking model has virtually ceased to exist, with central banks focused on pumping up equity markets, and private banks focused on securities speculation. ¬†And this has now opened the door for capital financing to be taken over by internet commerce conglomerates and crowdfunding platforms, who see the benefits of such lending going far beyond simply being a return on their money.
Kenneth Schortgen Jr¬†is¬†a writer for The Daily Economist, Secretsofthefed.com,¬†Roguemoney.net, and Viral Liberty, and hosts¬†the popular youtube podcast on Mondays, Wednesdays and Fridays.¬†Ken can also¬†be heard Wednesday afternoons giving an weekly economic report on the¬†Angel Clark radio show.