The economic and financial crisis has created stricter credit terms for clients to obtain credit from banking institutions. This has subsequently led to the creation of niche Financial Institutions providing short-term, unsecured loans to clients who may need a small amount of money. This activity is commonly known as micro lending, short term loans or payday loans.
A number of operators in this field have found Malta to have the right regulatory framework for this type of activity. In fact, the Malta Financial Services Authority has already licensed a number of institutions carrying out the business of lending, specializing in short-term unsecured loans.
An institution providing micro lending is able to grant loans of small amounts to borrowers, which need to be paid within a period ranging from 30 days to 6 months. These loans are often required by clients who are in emergency financial situations and who satisfy the stipulated minimum requirements posed by the institution concerned. These usually include the provision of personal information and a steady income.
There is no fixed interest rate cap in Malta, however any APR charged should be a reasonable amount for the short term lending market and the amount of the loan granted has to be proportionate to the income of the individual.
Full disclosures of all charges, fees and any risks of pay day lending would have to be made to the clients.
Once a pay day lender obtains authorisation in Malta as a Financial Institution, it is possible to lend to clients overseas by means of reverse solicitation.
It is estimated that by 2016, internet payday loans will cover around 60% of all cash advance loans.
EMD can assist with the structuring, setting up and licensing of financial institutions providing micro lending, pay-day loans and short-term lending.