Nigeria’s digital lending space is taking shape. Startups that can build the important rails to help the sector become more efficient have been receiving funding in recent weeks.
First, the online loan marketplace, Evolve Credit received funding from Microtraction. Barely two weeks later, CARMA, the “world’s first credit marketplace,” also received funding from Microtraction.
CARMA which was founded in 2020 immediately made the decision to begin its Nigerian operations. So I reached out to Ted Martynov about what the company is looking to achieve in Nigeria.
What CARMA does: Because of the absence of effective credit bureaus in Nigeria, digital lenders have to use a mix of data points in deciding whether to grant loans. According to Ted, these lenders need additional information that can only be provided by credit bureaus.
“According to World Bank data, only 14% of the Nigeran population has a tested credit history and this is the fundamental issue because even if you have access to this data, it doesn’t work for you because you want to give loans to more people.”
“So we decided we want to find a solution to this problem. It is absolutely clear that traditional credit bureaus simply do not fit the demand that comes from the lenders in Africa.”
Helping lenders with additional data points: According to Ted, in Kenya and Nigeria, digital lenders have important decisions to make with very little data. So one of the things CARMA does is to convince these lenders to contribute their own data to its database. This way, all the lenders in a country can easily cross-reference information and data points.
But CARMA doesn’t stop there. It also provides data from telecoms companies and utility companies, expanding the data points available to lenders. If you can already spot the data concerns, Ted says that his company’s decentralized way of storing data means that if there’s ever a hack, the hackers will not receive all the information from all the companies providing data.
That’s important, given that Experian, the South African private credit bureau was hacked in August 2020. The hackers had access to the information of 24 million customers and 800,000 businesses.
How does CARMA make money? If you’re a telco company and you provide some KYC transactional information to CARMA, you get paid, say $1 if a lender uses that information. CARMA then takes a commission off that sale. Pretty sweet deal.
Basically, CARMA puts data on a shelf and lenders pay every time they hit the exact data they need.