Citifinancial Adopts Lending Model to Emerging Markets

In the U.S. economy, about 20 percent of personal consumption expenditures are funded with consumer credit, thus helping to fuel economic growth. To put that in context, India's usage of consumer credit is at about 3 to 4 percent, and Russia stands at 1 percent.

Some banks are working to change that. "There's a huge opportunity for financial institutions to make a difference in the lives of people all around the world," said L. Ramesh, senior vice president, Citifinancial Mortgage, at a SAS Users Group International conference in Seattle, Wash.

Citifinancial plans to export the substance of the U.S. business model around the world, and in the process, make it possible for people to reach otherwise unattainable goals. "In several markets, we are the first ones to give them consumer credit," said Ramesh. "We have a huge opportunity as a company to change people's lives and to change the economy."

For an emerging markets lender, one of the main challenges is credit risk management. Indeed, credit bureaus are still relatively rare. Furthermore, those that do exist, even in economically advanced countries, are often limited to negative credit information about delinquencies, rather than positive information about timely payments.

But that hasn't stopped Citifinancial. According to Ramesh, borrowers are asked to provide bank statements going back one to two years. That provides evidence of recurring debits, along with indications of spending patterns and debt-to-income ratios. "We ask:'Where do you live? What kind of stuff do you have?'," said Ramesh.

Citifinancial also manages the expectations of its newest customers, making sure that they understand the implications of their borrowing. The bank will make suggestions accordingly, said Ramesh: "You want a BMW? Why don't you start with a Ford Focus?"

"We take them slowly into credit," he said.

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