The use of personal credit—in the form of credit cards, personal loans, and automobile loans—has always been low in Asia. It fell even further when the financial crises of 1997 caused banks to rein in their lending, leading to a drastic reduction in the level of outstanding consumer debt in many Asian markets. Is credit use likely to remain limited in the region? Perhaps not, according to a survey probing the way its people use personal financial services. This research also points to the existence of a very real opportunity for financial institutions.

In banking circles, Asian consumers are thought to be more averse to borrowing than are their Western counterparts. Indeed, there is much evidence to support the perception that Asians are credit shy. Asked if it was unwise to borrow money except to buy a house, 47 percent of mid- and high-income respondents in the areas surveyed (China, Hong Kong, India, Indonesia, Malaysia, the Philippines, Singapore, South Korea, Taiwan, and Thailand) agreed, compared with 43 percent two years ago (Exhibit 1). Throughout Asia the penetration of almost all consumer credit products has been consistently far below US levels (Exhibit 2).

Probe more deeply, though, and it becomes clear that credit use in Asia is widespread, even among those who claim to oppose debt. When we looked at the banking habits of respondents who said they thought borrowing was unwise, their overall credit use turned out to be almost equal to that of those who described themselves as comfortable with credit. This pattern prevails, for example, in all of the leading Asian credit card markets except India. In Malaysia and South Korea, respondents who claim to be averse to credit are actually more likely to hold credit or charge cards than those who say they are in favor of it (Exhibit 3). The same holds for other personal-credit products, such as auto loans and personal unsecured lending.

Among credit card users, these supposedly credit-averse respondents also have higher balances than those who are open to borrowing. So even if people say that they don’t like credit, they apparently do like what it offers: access to cars, clothing, and furniture they couldn’t otherwise afford; the ability to finance their children’s education or unplanned medical events; or simply the flexibility to manage cash flow.

Our research reinforces the likelihood that there is latent demand for personal-credit products. Besides the best interest rate, respondents said that a quick turnaround on loan approvals was an important reason for choosing a particular credit product or financial institution. In reality, however, banks compete mainly on price, thus ignoring other ways to expand their markets. Viewed in this light, it is understandable that people say one thing and do another; the extent to which credit is used may reflect the way products are marketed more than their basic appeal.

A review of credit successes in the Asia-Pacific region reveals several cases in which marketing has made a difference. In Hong Kong, the Japanese consumer finance company AEON Group has combined the speed and convenience that young customers demand with the appeal of the leading youth-oriented brand Hello Kitty (aimed at young Asian women) to come up with Hello Kitty credit cards, which can be approved in 30 minutes through a machine that issues cards instantly. This product portfolio made it possible for the company to grow from the tenth- to the sixth-largest card issuer in Hong Kong from 1996 to 1999. AEON is profitable, moreover, because it gives customers what they want—stylish cards issued quickly—and can therefore charge some of the highest rates in Hong Kong.

GE Capital in Thailand is another marketing-driven success story. Set up in 1995, the company doubled its card base in the year 2000 alone and has become the Thai leader in the profitable market for private-label credit cards. Its business-to-consumer World Wide Web portal, thailifestyle.com, has attracted tens of thousands of loan applications by offering persuasive content geared to young adults, while its off-line auto loan business thrives by providing fast service. Will the next few years see an increase in consumer credit use in Asia? Research suggests that demand exists. The challenge is for banks, consumer finance companies, and credit card issuers—incumbents and new entrants alike—to understand the consumer’s needs more fully and to find ways of tapping demand profitably.