I read the story “The Never Never Nest” in 1993 which immediately set a negative impression about maintaining a lifestyle with loans, and of people who spend their lives buying things they can’t afford using the flexibility of installment loans. The story starts describing a couple Jack and Jill showing their luxuries to Aunt Jane starting from their house, to the car to radio and every single thing, which is owned by them. Aunt Jane is amazed at first, coming to a realization that it’s all set on installments, and even to pay their installments they’ve taken a loan which is again paid in installments, which is like a debt trap. The story ironically ends when the couple pays the gift check to a doctor confirming that, 1 check more and the baby will be all theirs. However as I’ve grown and the world surrounding me has outgrown, I’ve greatly realized that installments (or by whatever thirty names you can call it) are instilled in our lives and slowly an integral part of it.

The modern installment system made its inception in the United States in 1807 when a furniture store by the name of Cowperthwaite & Sons opened in New York City and immediately began offering installment terms to its customers. Adopted by the Singer machine and the Piano industry, it traversed its roller coaster ride, when it became trendy again in the 20th century with the automobile finance company which established itself to grant auto loans, in 1919.

Over the next 100 years, multiple things have made short credit part of our life, right from the credit card’s saga to increasing consumerism and trend of being trendy, for the Millenial generation where comfort and convenience constitute of 60% of spend and challenges the basic definition of need and want.

The question to mull over today however is that post COVID-19 era, will the trend continue, to accelerate or will there be a bubble busting phenomenon and hatred towards all kinds of short debts will shape up our economies? Let’s dwell on this:

It seems natural that there will be continuous loss of jobs overall as every industry and company will try to tighten their expenses. The constant source of income will hence be available for a much shorter segment of people than now. It also however seems likely that this process will not be a reversible process at least in the short run, as the gig economy will only elevate more and more new setups providing contractual services rather than pursuing the job-search in a time of massive dropdown of the jobs. Also with the trend of doing start-ups, we’ll see mushrooming startups all around, which will require an initial heavy investment before returning to the path where constant spending every month can be pursued.

This simply leads to the possibility that although we all will be severed by a short contraction post that there will be an elongated period of what we term as ‘ expansion’ in terms of the business cycle in the economy. How should hence banks and financial institution gear themselves to phase this period then, well few tips, which may go handy are:

1. The credit policy needs to be refined and while I won’t call they need to be made stringent, they should more take into consideration that unsecured loans funding will be for more towards many small businesses rather than salaried employees.
2. The banks should not work on expanding their installment loans or work to get people into more debts. However, this should not stop them from pursuing more clients, as increasing clientele would be never easy again, post this phase, as the business cycle moves from expansion to the peak phase.
3. Shift the focus to prepare in giving more small business SME loans or big personal loans rather than giving too much of small credits and encouraging extravagant spending by consumers in general.
4. The need to re-organize banks as more on the line of ‘new org structure’, which has been largely only spoken about but not pursued, by many such as ‘two-pizza teams’, small and beautiful, simple and flat structure rather than being a network diagram or a ‘n by n’ matrix.

Every problem brings an opportunity and COVID-19 has already proven more than opportunity in certain senses already, it has made digitization possible easily and effortlessly as the era has automatically changed and so have the preferences. Now, these are the moments to build ourselves and our society from the beginning but still remaining oriented to the future.