Financial inclusion in Africa has significantly improved in recent years due to the substantial funding and increase in fintech rising with different solutions in the continent. For example, the banked adult population in Nigeria has increased from 36 million in 2016 to 47.7 million in 2020. As of March 13, 2022, the Nigeria Inter-Bank Settlement System (NIBSS) places the number of Nigerian bank account holders at 53 million.
Even at this, there is still a wide disparity in the credit and insurance sector in the region. Most of Nigeria’s financial inclusion growth has come from savings and payments.
Lendsqr, a fintech startup, is set to disrupt the industry by creating a large-scale lending ecosystem in Africa after raising an undisclosed amount in a pre-seed round to scale its innovative cloud lending solution.
Studies have shown that access to finance and economic growth directly correlate. The ease with which individuals and businesses can obtain affordable credit today impacts economic growth in the future. One of the secrets of developed countries’ growth is that it is primarily financed by loans from banks and other financial institutions. This, the founder of Lendsqr, Adedeji Olowe, understands, and he’s building his lending cloud solution to make credit affordable for all.
Adedeji, a member of Open Banking Nigeria Trustee, believes that unlocking credit access is a surer method of boosting financial inclusion in Africa. Credit should be accessible and affordable for all because it’s essential to both Nigerians and the Nigerian economy.
“I believe that without an evolving middle-class, we may not come out of our national morals. But without credit to help people stand up, the middle-class wouldn’t emerge.”
Lendsqr is building a superior, cost-effective cloud lending ecosystem that makes lending accessible and affordable for lenders and borrowers. More than 100 lenders are currently using the Lendsqr cloud lending ecosystem to offer credit to about half a million users.
Lendsqr is already helping smart lenders like Blocka Cash, Urgent10k, Kredi Bank, and CreditVille to scale their lending significantly. And others like YesCredit, P2Vest, and Klump are using Lendsqr APIs to make smart decisions on their platforms.
Nigeria’s Lending Space at Glance
In Nigeria, unlike most developed countries, it’s not only difficult to access credit but also expensive. According to International Finance Corporation, the lack of access the credit finance is a crucial constraint on the growth of small and medium enterprises in Sub-Saharan Africa, and thus also an important limitation on employment, economic development, and shared prosperity.
2021 report by Enhancing Financial Innovation and Access (EFInA) reveals that in 2020, only 3% of Nigeria’s 106 million adults had access to credit from a regulated financial institution.
Such a low percentage points to a considerable gap, and per Lendsqr’s analysis, the credit market is worth ₦72 trillion ($173.5 billion) in Nigeria alone.
Traditional financial institutions should be jumping at the opportunity, you say? Apparently not, and for a good reason.
Most African financial institutions will only lend to creditworthy borrowers, such as governments, massive enterprises, and high-net-worth individuals. Small businesses and ordinary people are in a different scenario.
A statement by Juma Reli, Bank of Tanzania Deputy Governor, at the launch of the country’s official databank explains the scenario of these groups — “Small businesses and common people borrow at high rates because of the high risks involved as lenders do not have information on their credit behaviours.”
Several digital lending platforms have sprung up in Nigeria in recent years; however, most of these lenders operate illegally and unethically based on current circumstances. The few legal ones constantly face issues with loan defaulters.
Adedeji believes it may be hard to blame institutional lenders. The average Nigerian’s credit score has not improved considerably, and the low lending percentage says it all.
“Then came the light bulb moment — what if tech and data are combined, made available at bargain prices, to enable lenders to lend securely and responsibly? Wouldn’t that make lenders expand? Wouldn’t that curb chronic debtors and block them from abusing credits?
“Wouldn’t that make institutional investors make capital available to lenders? Wouldn’t lenders be able to reach Africans at the point of need through BNPL?” Adedeji asks.
Solving Africa’s Lending Challenges with Lendsqr using Shopify-Like Model
Building any lending solution in Africa can be challenging. It only takes the toughest to see it through. Going behind the scene of Adedeji’s industry experience and his enviable LinkedIn profile, what the fintech mogul plans with Lendsqr is entirely on a beast level.
Adedeji is bringing his two decades of experience in banking, credit, technology, and venture capital — as a board member of Sparkle and Paystack and the previous chairman of TeamApt — to build a reputation as Africa’s Open Banking Leader.
To solve the issues with lending in Africa, Lendsqr provides small to medium-sized lenders with a comprehensive technology and data stack to lend to customers at scale using the best of breed decision engine, integration to payments systems, and data for quality decisions.
Shopify, a Canadian tech giant, is an effective method to convey the startup’s value proposition. Retailers can use the Shopify platform to develop and manage their online stores. If you have something to offer online, Shopify takes care of the technical aspects while allowing you to customise the platform to attract customers.
Similarly, Lendsqr provides a platform for any company interested in entering the lending game.
“Our stack has 100% of everything a lender needs to lend. And they can register and issue their first loan in five minutes, running off one of the largest data repositories for credit in Nigeria. All for free.”
For context, any loan decision requires data on a person or business. Employment history, income level, and debt-to-income ratio are all factors to consider. There are hundreds of data variables to choose from behind the scenes.
Adedeji explains that this data comes from lenders already on Lendsqr and other established lenders, who he prefers to keep secret. Lendsqr is also plugged into the CRC Credit Bureau and Credit Registry.
“We plan to use this data to unleash credit for the underbanked. And we’re powering our lenders to reach their customers via our Web app, Android app, iOS app, and Web SDK,” Adedeji revealed.
Compared to other cloud lending solutions, what distinguishes Lendsqr is an ecosystem with everything a lender needs. The Lendsqr ecosystem learns and becomes smarter and better with every loan request and every fraud detected or prevented, making life easier and better for every lender that runs on Lendsqr.
Interestingly, Lendsqr claims its customers can start lending with already configured products and domain names in five minutes.
“Our set up and user onboarding cost are as cheap as free (₦0). Our decision engine is very smart with over 300 data variables available for lenders to tweak as they wish, yet we provide them with simple start configurations, to begin with,” Adedeji explains.
Commenting further, he says, “Our collections and recovery is relentless; it hunts down bad borrowers until the very end. We have one of the most extensive blacklists to protect lenders from predatory borrowers and chronic debtors.
“For our APIs, unlike the credit bureau and others, we only charge if it finds data.”
Using Amazon-Esque Model to Generate Revenue
Lendsqr’s aggressive approach certainly comes at a cost. You may ask — If Lendsqr has zero costs for setup and user onboarding, how does it make money?
The answer seemingly lies in playing an Amazon-Esque model.
Adedeji explains — “The core of our revenue model is charging a fee when we help lenders collect their loans. And there is an alignment — we don’t charge them before — our bread isn’t buttered before theirs.”
With this approach, you might have also guessed that Lendsqr is trying to dominate the lending market, giving no chance for competitors to catch up. And the process can be said to be working so well for it to have closed an undisclosed pre-seed round in a short period.
“Lendsqr will break even after two years. We follow the model of Amazon — amazing technology and data play at basement level pricing,” Adedeji maintains, and for emphasis, adds Jeff Bezos’ famous words, “Your margin is my opportunity.”
“In four months, our lenders would have access to native mobile SDKs that allow them to lend even to the mass market, using their phone data for free instead of paying over $0.5 (₦250) as offered by many lendtech providers,” he said.
Counting on the small wins, Adedeji mentioned that — “We’ve had to engage with different data providers, credit bureaus, and others. We successfully argued cases for cheaper and scalable lending with the likes of CRC and Mono, who are partners in this journey.”
Beyond technology, Lendsqr also plans to connect lenders with capital providers to help them scale their lending.
With Adedeji’s “beast” game plan, you can tell that Africa’s lending scene will explode in the coming years.
Adedeji encapsulates Lendsqr’s near vision in a powerful statement that:
“Within 18 months, 1 in 4 consumer credit in Nigeria would either be originated by lenders on Lendsqr or Lendsqr would have provided data comfort to other lenders.”
