I don't blog much about work here. Partly that's out of discretion; mostly, though, it's because a lot of my work is pretty technical, and I don't think too many people would be very interested. Still, this week I happened to run across some interesting statistics. By chance, my work had me dealing with three different sorts of financial instruments -- mortgages, microfinance loans, and factoring. And I was intrigued to find that all three have been undergoing explosive growth in the last few years.
Here are some numbers. Mortgages -- we all know what mortgages are, yes? Borrowing money from a bank, pledging your land or apartment to secure payment. Very common and normal in the US and Western Europe. But before about 1999, this pretty much didn't happen in Romania. Lots of reasons... unclear title (ownership) of land, bad recording systems, antiquated legal system, cautious banks, you name it. Basically it was almost impossible to get a mortgage, and when you did, rates were incredibly high. They're still pretty high. But the mortgage market has just started to take off. In 2002 there were about $150 million worth of mortgages issued in Romania. In 2003, that number rose to about $450 million. And in 2004, it's expected to hit around $750 million. $750 million is either a lot or a little, depending on how you look at it. After all, it only works out to about $40 worth of mortgage financing per Romanian citizen -- residential and commercial, combined. $750 million would represent the total mortgage loan for a typical small American town. Hot Springs, Arkansas has more mortgages than all of Romania. On the other hand, it's pretty impressive for a market that basically didn't exist just five or six years ago. And it's not hard to imagine Romania having a 5 to 10 billion dollar mortgage market by the end of the decade. Microfinance loans -- these are small commercial loans, less than $20,000 and for terms of two years or less. Most of them are from nonbank lenders. Right now, the complete microfinance portfolio in Romania is about $35 million. That's not much... but it's up from $16 million in 2002 and $9 million in 2000. And it's expected to rise to around $75 million by the end of 2005. Those numbers are still pretty small, but it's important to remember that the average microfinance loan is around $4,000 or so. So we're talking about roughly 10,000 loans to individuals and small businesses this year, rising to around 20,000 by the end of next year. Still only one Romanian in a thousand... but it's a start. Factoring -- factoring is when a business sells its accounts receivable, usually to a bank. "Accounts receivable" are the debts that people owe to a business for goods and services provided. So, for instance, your phone bill is an account receivable for the phone company... until you pay it, at which point it's cash. Now, a businessman may sometimes want cash RIGHT NOW, instead of waiting 30 or 60 or 90 days for his customers to pay him. So a bank will offer to buy his ARs -- at a discount, of course -- for cash. The businessman gets a quick hit of money, and the bank gets a steady stream of income as the customers pay off their debts. Factoring has been around in Romania since the mid-1990s, but only on a very modest scale: $12 million in 1995, $15 million in 1996. But in the last few years it has begun to explode. Last year, about $225 million worth of accounts receivable were factored, and that number is expected to be around $350 million next year. As with mortgages, these numbers are either large or small depending on how you look at it. Great Britain, with about three times the population of Romania, factored over 100 billion dollars of debt last year. On the other hand, factoring barely exists in several transition countries -- Bulgaria didn't start until 1999, and factored only about $20 million last year. And the growth rates are, to say the least, encouraging. The deeper significance of all this, I may pick up in a later post. For now, what's interesting is that three separate and distinct financial instruments have all shown explosive growth in the last few years. Growth from a very, very low base, yes. But if these growth rates are maintained for just a few years -- a big "if", I know -- it's going to start having some remarkable, and very noticeable, effects.