A slow pandemic support for startups
A TechCabal roundup about the
impact of the coronavirus pandemic
on Africa’s tech industry

JUNE 21, 2020
This newsletter is a weekly special focused on the effect of the novel coronavirus, COVID-19 on African tech and innovation ecosystems. Subscribe here to get it directly in your inbox every Sunday at 3 pm WAT.


Hello,

Consumer-facing digital lending apps are the subject of today’s conversation.

In the early days of the pandemic, Carbon CEO & co-founder Chijioke Dozie told Business Day it had adjusted its maximum loan amount from ₦1 million ($2,585) to ₦500,000 ($1,292). Dozie also mentioned that his company has temporarily slowed down loan increases for repeat borrowers.

Although it appears things are looking better with lockdowns being lifted across the world and business reopening, it doesn’t seem like much has changed for consumer lending apps.

Two months after Dozie’s interview, Carbon posted an explainer video in response to complaints about lower loan amounts, and some of the responses to the video raise some questions.

Last week, someone I know, let’s call them Max, tried to get a loan from another lender. They couldn’t. This person had received loans from the lender more than once before.

Welcome to today’s edition of our weekly newsletter. If this is your first time, do catch up on previous editions. Also, a friendly reminder that the virus is still out there, and here are resources to help you stay safe and happy thoughts to weather these times.

Let’s get back to Max’s story.

WHAT’S HAPPENING

Are lending apps struggling?

Max had used Migo a number of times, and because they often repaid, they were beginning to get as high as ₦50,000 naira. Last week they tried to get a loan as usual but saw the message below:

It raises a number of questions. Are people requesting more loans? If yes, will they repay? Will
default rates go up? Are lenders struggling because of the unusual increase in demand?


In
the explainer video posted by Carbon, the company blamed late repayment and non-payment for lower loan amounts. Responses to the video showed that even loyal customers were getting lower amounts just like in Max’s case.

Like Max, Jordan (not real name) shares a confusing experience with GTBank’s QuickCredit app.

“I had earlier repaid a ₦600,000 loan just before the pandemic and lockdowns kicked off, and a few weeks later I tried taking another loan and got a sixth of the amount I last repaid. I was surprised because the amount was supposed to be higher. One month after the lockdown, I got an SMS from GTBank that I could get up to ₦5 million. What changed?”

For Max, they got a loan from another newer lending service, after trying Migo unsuccessfully.

Back in April, the African Union estimated that there could be 20 million job losses in Africa as a result of the novel coronavirus; South Africa alone could lose 7 million jobs.

The numbers on economic growth and consumer spending are not
pretty either. So if a person who took a loan suddenly loses their job, the result is that they will be unable to pay back.

Did this borrower lose their job?
Pandemic-induced pay cuts and furloughs mean more people and businesses could be in need of loans. But keeping default rates low is a key metric for lenders so there’s a lot of caution in giving out higher amounts. And this will inevitably lead to a vicious cycle.

Higher default rates could be problematic for lending startups. In East Africa’s two major markets; Kenya and Tanzania, data from the Consultative Group to Assist the Poor (CGAP) in 2018, revealed high delinquency and default rates. CGAP surveyed over 1,000 digital borrowers in Kenya and Tanzania, it found that roughly 50 percent and 56 percent respectively report that they have repaid a loan late. About 12 percent and 31 percent, respectively, say they have defaulted.

In Kenya, where there are no less than 50 loans apps and concerns about predatory lending, the Central Bank stepped in. It asked lenders, mostly bank-owned ones, to extend repayment periods by one year for customers who show distress as part of its coronavirus response. The President, Patrick Njoroge described the action from lenders as an act of patriotism.

We are grateful for the measures you have taken. This is patriotism. We appreciate your efforts (Banking industry, CBK) in trying to help Kenyans overcome the fiscal challenge. We need each other as Kenyans,” he stated.

There was no mention of financial support for these lenders at the time.

Extending loan repayment periods could tie up the cash that is available to other borrowers as lenders do not have an infinite amount of money to give borrowers. This makes the option of extending repayment periods quite unattractive for lending startups in more ways than bank-owned lending apps. The most viable option for the former is to reduce loan amounts, which they are currently doing.

It’s not all negative.

While an unusual increase in demand could put a strain on lenders, it’s generally a good problem to have as there will be more first time borrowers and a general increase in transactions.

But existing borrowers like Max could also look to competitors when their default lenders are not coming through.

This is also a good time for newer lenders with a fresh capital stockpile to onboard users and test new products like peer to peer lending.

FROM THE CABAL

An online marketplace for medical supplies in Africa
Around the world, access to medical supplies has been one of the biggest challenges during this pandemic, and the Africa Medical
Supplies Platform (AMSP) has launched to solve this problem on the continent.


Backed by heavyweights, the platform “will
provide purchase, volume aggregation, quota management, payment facilitation as well as logistics & transportation of COVID-19-related medical equipment.” Kay’s story has more details on ASMP’s plans.

The Nigerian government is taking too long to provide pandemic support for startups. In April, the government through its National Information Technology Development Agency (NITDA) set up a committee to figure out how to support startups in the pandemic. One month later, TechCabal learned NITDA had not implemented the recommendations of that committee. In Abubakar’s recent report, not much progress is apparent and NITDA seems to be in a rush to save face.

NEWS FROM AROUND THE WORLD

Amazon deploys AI for warehouse social distancing
The system will signal workers when they are less than six feet apart from one another. This is coming 13 days after Amazon was sued
for inefficient measures.

The tech combines depth sensors, an AI-enabled camera to track movements, and will display signals on a connected TV screen. According to a report by The Verge, Amazon is planning to open-source it.

After reopening, Apple is closing stores. In March, Apple closed all its stores outside China. Two months later, with safety measures, it decided to begin phased reopenings with over 100 stores, but this may be about to change.

TechCrunch reports that following a spike in COVID-19 numbers, Apple is shutting down 11 reopened stores in 4 US states.

WHAT WE ARE READING

“Keeping your eye on the cash”: Startup tips for an unusual EOFY
As we enter the second half of 2020, founder of Standard Ledger, Remco Marcelis gives money and accounting tips
for startups.


In this
SmartCompany article, he gives 5 tips that can be adapted
to current realities.

Best wishes for a great week

Stay safe and please observe all guidelines provided by health experts.

You can subscribe to our TC Daily Newsletter; the most comprehensive roundup of technology news on the continent, and have it delivered to your inbox every weekday at 7 am WAT.

Follow TechCabal on Twitter, Instagram, Facebook, and LinkedIn to stay updated on tech and innovation in Africa.

– Victor Ekwealor, Managing Editor, TechCabal

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