Verizon experts analyzed the microfinance market in 2021. According to the research, a third of MA residents (29%) started taking out payday loans in March-June this year. The overwhelming majority (90%) borrowed up to $1,000 at a time. Almost 60% of borrowers admitted that it became more difficult to pay off debts during the pandemic, and more than half (52%) used borrowed funds to buy essential goods. The survey involved 1,015 people from Massachusetts who have used the services of MFIs in the last year.
29% of Massachusetts borrowers took out loans for the first time during the pandemic
The 2021 restrictions worsened the financial situation of Americans: 70% of Americans have a decrease in their income level. The reasons were, among other things, job loss (31%), unpaid leave (18%) and unforeseen expenses due to illness (16%). Half of those surveyed in the pandemic reduced their expenses, however, for a fifth (22%) of Americans, despite the self-isolation regime, monthly spending increased.
Every third respondent (29%) was forced to apply for bad credit loans Massachusetts for the first time during the pandemic, and 20% began of consumers to do it more often than before. 19% of respondents continued to take payday loans with the same frequency as before. Only 10% of borrowers have become less likely to apply for such loans, and 22% have never resorted to the services of MFIs during the quarantine period. The main reasons for requesting payday loans for Massachusetts residents were the purchase of essential goods (52%), repayment of other loans (30%), medical treatment (17%), payments for food, education and utilities (15%) and the purchase of clothes and shoes (11%).
The majority of borrowers in MA (90%) took one-time payday loans in the amount of up to $1,000: 71% – up to $800, 19% – from $300 to $700. Only 8% of respondents took loans in amounts exceeding $1,000. For almost half of borrowers (48%), loan amounts remained the same as before the pandemic. 33% of people had to borrow more than before, and one tenth (11%) began to contact MFIs less often.
People who applied for payday loans for the first time in 2021 took less loans than those who had already used these products before self-isolation. Half of the borrowers who contacted MFIs for the first time during the pandemic took 1-3 short-term loans in March-June of this year. For comparison, the majority (41%) of borrowers who used the products of MFIs before the restrictions took out 6 or more payday loans over the same period. In general, during this period, the majority of people (43%) had to take 1-3 loans from MFIs, 21% – 4-5 loans, 31% – 6 or more loans.
59% of borrowers admitted that it became more difficult to repay loans in 2021. Difficulties experienced 71% of those who took out more loans than usual during this period. A similar opinion was expressed by 66% of borrowers who took loans for the first time in 2021. The majority of Americans (79%) paid off their debt to MFIs in full or in part by September. However, every fifth borrower (21%) has not yet repaid the debt.
Another survey involved 3,184 people who have used payday loans over the past 12 months in all US states. Most (77%) of them are men. Almost half (47%) of the respondents are aged 25- 34 years, 26% are aged between 35 and 44 years. The majority (28%) live in Texas, 13% – in California, 12% – in Arizona and Illinois. Most of the respondents (34%) live with 4 or more family members.
The states with the highest average loan repayments in MFIs in March-June 2021 were: Massachusetts, Ohio, New York, Florida and Pennsylvania.
Verizon also interviewed MFIs and found that during the pandemic, many of them tightened requirements for borrowers and changed their scoring system, therefore, the number of rejections increased. Loan approvals remained unchanged in those organizations that primarily deal with long-term clients. MFIs did not record a significant increase in the demand for payday loans and strong changes in their size: the amounts remained at the pre-quarantine level, and fluctuations in the direction of decrease and increase did not exceed 10-15%. All MFIs reported, to varying degrees, an increase in overdue payments during self-isolation. During this period, all microfinance institutions optimized their costs and, in general, were ready to issue loans online: the pandemic became a catalyst for this process.
During the pandemic, many Americans faced serious economic difficulties, so the growth in applications to microfinance organizations was natural. This is especially true in areas where credit cards are not so common. People needed money for essential goods, clothing and medical treatment, so they used short-term loans. At the same time, it turned out to be many times more difficult to repay them than before the pandemic.”