TC Daily

TechCabal Daily – What will a loan marketplace mean for Nigeria’s digital lenders

Olumuyiwa Olowogboyega 3rd November 2020

One of the stories that could have gotten lost in the news cycle was Microtraction’s decision to invest $25,000 in Evolve Credit.

It was the first I was hearing of Evolve Credit, a startup from out of
Nigeria that’s solving a really interesting problem. It was interesting enough that I reached out to the company’s founder and CEO, Akan Nelson and we had quite the conversation.

The problem: In Nigeria, getting a payday loan is easier than say, ten years ago. If you search for “lending app” on Google’s PlayStore, you’ll find 12 results. With different lenders offering different rates, it would be helpful for people to be able to compare the terms these lenders offer.

Why pay 17% interest if I can find another lender that offers 10%?

The solution: An online market place where people can see all their loan options. The marketplace also allows you apply for loans directly after you find the best loan deal that works for you.

Underneath that market place, loan management software that allows offline lenders to become fintechs overnight.

Poser: Will people who are taking small loans care enough to use Evolve Credit’s platform compare their loan options?

“We’re a marketplace for personal and SME loans. The section of the market we’re catering to for personal loans are people who want slightly larger loan amounts.”

“Yet, even at that, the common wisdom is that people who want money don’t care where the money is from. What we’ve found in our experience is that that’s not true.”

“While people will take money where they can get it, if there’s an opportunity to get a better deal, it’s something they would also consider.”

Solving distribution problems for lenders: “It’s easy to feel like there’s no money for loans or that there’s some kind of credit gap,” Nelson tells me.

“But the credit gap is not as big as people say. It’s a distribution problem. If you’re a Microfinance bank in Ikeja and your ideal customer is a business owner in Lekki, how do you reach that person?”

This example shows us what’s at the heart of the problem: the majority of the lenders in the Nigerian market are not significantly tech enabled.

How will Evolve Credit make money from all of this? There’s a monthly licencing fee for the lenders as well as a commission when people apply for loans on Evolve Credit’s platform.

Bonus: Ingressive Capital, a pre-Seed to Seed VC firm that made its first investment in Evolve Credit has now made its second investment in Kwaba. Kwaba helps low and middle income earners access installmental rent financing.

Want to know real pain? Try house hunting in Lagos.

The nightmare that is house hunting in Lagos is right up there with Lagos traffic. Yet, one difference between the two problems is that a whole new sector backed by technology, property tech, is trying to solve the house hunting problem.

A few property tech platforms even go as far as to say that they’re trying to solve the housing crises in Lagos. It’s a claim that will play well with investors, but I’m not sure they even believe
that.

Nigeria’s property tech companies are not trying to solve the housing problem on a mass scale, and there’s nothing wrong with that.

There’s a general shortage of housing units
Available housing units are often out of the cost reach for most people
Housing units are sometimes mismatched to the demographic that wants and have the resources for them

Startups like Muster/Fibre/Spleet solve the last two problems by making units more affordable
via a system of monthly rental payments. They also aggregate vetted persons to share apartments while providing amenities at a reasonable price point.

Yet, they cannot solve what is essentially a housing shortage problem. That would require building housing units. Building housing units will then expose the bigger ecosystem problems in Nigeria’s housing sector.

The summary: Muster/Spleet/Fibre are addressing parts of the housing problem that are addressable by private sector initiatives. The problem is way bigger than them.

Go deeper: Why solving Nigeria’s housing problem is beyond proptech startups for now

Prosus, the digital arm of Naspers has an interesting problem.

Its market capitalisation of €141-billion market is almost entirely based on its 31% stake in the Chinese giant, Tencent. While Prosus has other investments like iFood in Brazil and MailRu in Russia, none of them will be able to match Tencent.

In 2020 alone, Tencent’s stock has gained 57%, making it the best performer in Prosus’ portfolio.

Why invest in Prosus shares to get exposure to Tencent when you could just invest directly in Tencent itself?

When you look at it like this, it’s easy to understand why Investors are not exactly impressed. But Prosus is trying to think its away out of a problem where one out sized success in its portfolio has put pressure on the company to make another equally good investment decision.

Go deeper: Prosus has a $5-billion solution to a $59-billion problem