Economic downturns: the importance of credit, and how Ezra can help

As the threat of global recession lingers on the horizon, what role can lending providers play in easing economic pain – and even turning the tide – particularly in developing markets? Read on to learn how Ezra’s approach to credit solutions is helping financial service providers and their consumers during these challenging times.

Economic downturn: an overview

In late 2022, the Organisation for Economic Co-operation and Development (OECD) projected that economic growth will slide from 3.1% to 2.2% this year. If this materialises, 2023 will see one of the greatest downturns – and weakest years – for the global economy since 2001.

What an economic downturn means for emerging and developing markets

For emerging and developing markets, the consequences of an economic downturn can be even more significant. 

Erwan Gelebart, CEO of Ezra, says: “When the world’s bigger economies try to minimise the impact of a downturn or recession, it often comes at the expense of investment in emerging and developing markets. This, combined with the fact that many developing economies already face greater economic hardship, accelerates the imbalance in the global economy, and hits the financially underserved and excluded the hardest.”

According to a recent report from the World Bank, in Sub-Saharan Africa, growth in per capita income for the next two years is forecasted to average just 1.2%, a rate that could cause poverty rates to rise. And factors such as extreme inflation in food prices will further affect livelihoods across Africa, which already accounts for 60% of the world’s extreme poor. And, as financial service providers clamp down on lending – in particular for individuals perceived as ‘high-risk’ – opportunities to participate in the global economy will reduce even further. 

However, Gelebart notes: “During times of economic turmoil, credit lenders have a vital role to play in kick-starting economies from the ground-up and providing financial opportunities to those that need it the most.”

Why credit matters during an economic downturn

Credit is what drives the global economy. During ‘boom’ periods, individuals and companies are more likely to take out a loan due to increased economic stability and better job prospects. This money then flows back into the economy, bolstering businesses and sustaining economic growth. During economic downturns, individuals tend to be more conservative with their money, whilst financial institutions such as banks will reduce their range of loan products and services. It’s therefore in the interest of financial institutions and governments to reinvigorate an appetite for responsible lending, in order to instil confidence in the markets and increase the flow of money back into the economy. 

During a downturn, credit lenders can also be a vital lifeline to individuals and MSMEs who already face financial hardship. Currently, 131 million MSMEs in emerging markets alone lack access to finance. By continuing to provide straightforward yet responsible access to services such as nano loans during economic slumps, financial institutions can keep small businesses afloat, and the economy moving.

However, even during ‘boom’ periods, there is more that lenders can do to encourage responsible credit provision in developing markets. For many individuals and MSMEs in these economies, there is a degree of mistrust in banks, either due to bad experiences with trying to obtain credit or a lack of access to financial education. And globally, the most frequently noted pain point for MSME borrowers is a delayed time to funding. 

This is where embedded lending solutions can play a vital role in transforming the way that end users in emerging and developing markets access credit, build their score and improve their economic outlook. The fintech industry was born from the 2008 Great Recession, with a commitment to making financial products and services quicker, more secure, simple, and transparent. And today, financial institutions that harness the power of fintech to transform their services have the opportunity to access new markets and enable faster, more accurate credit decision-making.

Ezra is an API-based microlending fintech which leverages alternative data to provide financial service providers – including banks, mobile money operators and utility providers – with the means to grant loans to the financially underserved and excluded.

Gelebart says: “At Ezra, we are proud of our world-class team of experts, who have developed a bespoke credit scoring engine designed with end users across developing markets in mind. Our advanced analytics and insights into consumer credit behaviour have allowed us to build nuanced, accurate customer profiles – even for those without a credit history – so that our partners can make smarter, instant, data-driven lending decisions with flexible repayment terms.” 

This rapid yet responsible approach to credit solutions is already making a difference to the lives of millions across the world. Last year alone, we processed more than 2 billion loans, with more than 40 million monthly active users.

And all of this comes at little to no risk to our partners. This means less hassle for our partners, and more opportunities for their end users – so we can help get the global economy moving in the right direction. 

To learn more about Ezra’s embedded lending solutions, and how our use of alternative data can transform your financial services, contact us today.