The pandemic of Covid-19 entered every pore of social life. In addition to the health risks faced by entire societies, the pandemic has caused enormous challenges for the global economy, which will drastically and permanently change the micro and macroeconomic picture.
Primarily, small companies are under attack, but large companies are facing one of the biggest economic challenges in the last hundred years, which affects their overall operations in all aspects, internally and externally – economic revenues, expenditures, costs, investments, cash flows, employees.
In situations when the global health and economic crisis caused by the COVID-19 pandemic is becoming stronger, financial companies, like all other companies, are facing liquidity problems, the inability to collect receivables and reduced access to funding sources.
But let’s take a step back and recall what the basic function of the financial companies is and the primary need for their services in the market.
Non-bank financial companies provide access to finance for citizens and small businesses that have difficulty accessing financial resources in another way, very quickly and easily, just when it is most needed, which directly affects the quality of life of service users.
Data from a survey conducted by the Association of Financial Societies of North Macedonia (AFD) last year showed that 12% of respondents do not have enough money for food, 57% can meet only food and clothing needs, but do not have enough funds for to buy household appliances, 44% of respondents were unable to save, and 35% said they could live on for about a month with their savings. These data have undoubtedly shown the need for financial resources, and the Fintech industry, which is developing all over the world, exists in our country for a real reason – to provide the necessary funds, in a fast and easy way, without additional security.
“Although non-bank financial companies are the youngest segment of the financial sector in Northern Macedonia, they were the fastest-growing segment, which in recent years has actively supported all those citizens and companies that needed funds to cover daily needs and working capital. We are talking about hundreds of thousands of citizens who at some point, needed financial resources to overcome certain financial difficulties and billions of denars made available to citizens, who usually do not have access to loans to traditional financial institutions – said Jana Nikodinovska, Secretary General of the Association of financial companies of North Macedonia.
Differences between non-banking financial companies and traditional financial institutions. The main difference between financial companies and traditional financial institutions is in the financing, ie traditional financial institutions are mainly financed by citizens’ deposits at low-interest rates, while financial companies are financed by their own funds and other sources with higher financing costs, which is approximately 15%. Adding to this the limited or completely disabled access to funding sources due to the global economic crisis and additional restrictions on regulation, very directly and very realistically are questioning the funds necessary for the operation of financial companies, such as wages for employees, obligations to suppliers, repayment of loans etc.
Traditional financial institutions, at least according to current data and analysis, maintain a certain high level of stability and profitability. The non-banking financial sector is already facing difficulties in maintaining liquidity in the given circumstances. Therefore, there is no doubt that there is a need for an appropriate equal approach in the distribution of the financial burden from the crisis of the non-banking financial sector and the traditional financial sector.
The non-banking financial industry, although small in share and almost without systemic influence, employs over 1,000 young people, has a solid contribution to state duties and contributes to community development through social projects, and thus has a direct impact on socio-economic dynamics. To this should be added the role of non-banking financial companies for financial inclusion of all social strata in our country. Hence, the question of the level of restrictions that should be applied to non-banking financial companies from a regulatory point of view, as well as the issue of balanced distribution of the burden of the crisis through all segments of the financial system, is well established. The non-banking financial sector is ready to show solidarity with the situation of citizens and society as a whole and is ready to offer relief to affected citizens and companies, but cannot afford equivalent measures of the traditional financial system. “Drastic restrictive measures will be detrimental to the industry, which operates in already difficult conditions, in the absence of financial support from the state, which would possibly mitigate the impact of the crisis,” Nikodinovska added.
All this calls into question the survival of the Fintech industry, and thus the danger of cutting alternative funding channels for many micro and small companies, as well as for a large part of the population because traditional financial institutions have shown resistance to provide loans even before the crisis, something that international financial institutions, such as the OECD, have repeatedly pointed out and indicated the necessary support and development of alternative approaches to financing.