That was the initial reaction of Arne Hartmann, founder and CEO of amalan, a debt management social venture operating in Indonesia and Malaysia, to Grab’s new cash advance scheme Upfront Cash.The scheme provides selected workers with the option to receive part of their projected earnings after paying a one-time administrative fee.
The debate in the US over payday lending schemes continues to rage to this day – after the US Consumer Financial Protection Bureau drew up wide-ranging rules in 2017 to curb the powers of lenders and tackle predatory lending. Even in the UK, new creditworthiness standards and caps on loan costs have been slapped to protect borrowers. Many firms unable to meet these stringent requirements have exited.
In addition, Grab runs an efficient standard procedure to process applications, disburse and collect the advances.Unlike Grab, banks might be less able to gauge the reliability of a Grab partner’s earnings. Grab has full data on their partners’ performance, past earnings and near-term earning potential, so it may be able to provide a higher credit limit based on their earnings-to-cash-advance ratio.
What happens if the driver defaults? Is there a penalty? Would Grab charge new “admin fees” for extending the tenor of the cash advance? READ: Commentary: How the new Point-to-Point Transport Industry Bill levels the playing field for ride-hailing operatorsThe problem with Grab’s new programme is that it is currently framed as an upfront cash advance or an advance payroll scheme, which many firms in the US offer, but sounds a lot like a loan scheme.
I do want to give Grab the benefit of the doubt since they have indicated that the programme has been limited to a small group of partners.