For consumer finance operators, the most prominent characteristic of the consumer finance business is the diversification of exposure. In contrast to the bank and other financial institution business model of large loans to specific borrowers such as corporations, consumer finance companies strive to diversify bad debt risks and ensure liquidity by providing small loans to a large number of customers according to their creditworthiness.

For consumer finance companies, the diversification of borrowers reduces the risk of loans becoming non-performing. Meanwhile, diversifying exposure limits the impact of certain loans being written off. When borrowers and exposure are diversified, loan write-off risk can be better managed, enabling “revolving contracts” that allow customers to borrow repeatedly within the credit limit, which is predetermined according to the customer’s creditworthiness. The customer makes regular monthly repayments of principal and payments of interest in accordance with the contract, enabling consumer finance companies to enjoy a significantly larger advantage than other industries in terms of managing financing and ensuring liquidity. The diversification of borrowers reduces the cost of bad debts, while the diversification of exposure enables a larger number of people to use consumer financing services. These lead to stable profits for consumer finance companies as a result.