Amazon to Expand its Lending to Small Businesses in Challenge to Big Banks
Amazon, a Seattle-based company announced in June 2017 that Amazon Lending has surpassed USD 3 billion worth of loans and advances to small businesses since its launch in 2011. The company is targeting to expand its lending to small businesses in the US, the UK and Japan which will prove to be a direct threat to the big banks which have historically denominated these markets. We view Amazon Lending as interesting case study for the African market given the increasing successes of many e-commerce players and various supply chain financing institutions (more on this next month).
Within the past year, the company has loaned more than USD 1 billion to small businesses. Over 20 000 small businesses have received funding from Amazon and more than 50% of the businesses that are funded are repeat borrowers. The company supports these small businesses from its own balance sheet and disburses within 24 hours, then automatically deducts the loan repayments every two weeks from the seller’s account. The company offers on its platform, instant loans with maturity of up to 12 months at annual interest rates in the range 6 to 17%.
Most of such independent sellers pay Amazon for storage, packaging and shipping of merchandise to their customers and this account for about 50% of Amazon’s total units supplied across the whole world. So, if the seller’s account runs out of funds, or if their sales suddenly fall, Amazon can put a freeze on any merchandise held in its warehouses until the seller repays.
“We created Amazon Lending to make it simple for up-and-coming small businesses to efficiently get a business loan”, said Peeyush Nahar, the Vice President of Amazon Marketplace. He also noted that most sellers (or borrowers) use their borrowed funds to purchase more stock and negotiate discounts with their suppliers.