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Will Alibaba Group Holding Ltd (BABA) Replace Banks In Offering Micro Finance Services To Entrepreneurs?

Alibaba Group Holding Ltd (NYSE:BABA)’s CEO, Jack Ma, has brilliantly foreseen the fact that retail will have to take a new form in China to power a healthy economy. Compared to the US, which has about 2.6 square meters of retail space per capita according to SEC filling, China’s huge population creates a statistic of 0.6 for the same metric. Consequently, bringing the business online was a huge advantage for Alibaba Group Holding Ltd (NYSE:BABA), which also enjoyed a lax competition. Now, the next best thing is micro finance, according to sources.

Largest Online Retailers in the World

The company is growing into a powerful business catalyst as it offers small firms the chance of using credit services from the e-commerce mogul. The best part is that Alibaba Group Holding Ltd (NYSE:BABA) has been gathering data on transactions to assess the trustworthiness of each seller and buyer on its platform and the same information allows inferences on the creditworthiness of a particular entity. Although micro lending wouldn’t have much success in the West as banks have gained enough expertise into the matter to offer support and services to small businesses, in China’s struggling environment it will be a savior-strategy for many.

Alibaba Group Holding Ltd (NYSE:BABA) hasn’t developed a mature assessment methodology and its experience into financing is quite small if compared to banking institutions, but the company has the advantage of a tremendous pool of information regarding its users. Furthermore, the e-commerce titan can also integrate information mined from its Alipay system to get an even more accurate picture on an entity’s ability to repay a loan. Alibaba Group Holding Ltd (NYSE:BABA) might give start to a disruptive innovation in financing as e-commerce firms will realize that they could offer financial support for the small retailers.

Emerging markets are the ones that need micro financing the most, because only within their borders people cannot get access to proper financing services that could secure a proper start for their business activities. So, this new approach might just complement the current financial activities instead of replacing them.

Disclosure: none

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