Community loans bridge the financing gap in Africa

Whether offering bill payment, airtime recharge, money transfer or remittance services to customers, mobile money agents play a pivotal role in accessing financial services for unbanked and underbanked populations in Africa.

“They have become socially relevant within their community as they are now the go-to person for all financial service needs of their local community members,” said Titilola Shogaolu, Financial Inclusion Manager at Interswitch in Nigeria recently. .

But paying regular monthly bills like rent or making sure suppliers, contractors and employees get paid on time can be a challenge for these small business owners, because high-spending times don’t always coincide with periods of high revenue – not to mention managing unforeseen business costs they might not have anticipated.

This makes access to reliable and affordable financing essential to grow their business, yet these traders rarely meet the standard requirements to apply and be approved for traditional bank loans. For those who turn to friends and family, this financial support is not always a guarantee.

Read more: ‘eLevy’ causes mobile money problems in Ghana

Against this backdrop, Nigeria-based FinTech Moni is trying to fill this funding gap with a community lending solution built around personal referrals, combining grassroots finance with digital solutions for mobile money agents across the region. .

Related: The changing face of mobile money in Ghana

“[Entrepreneurs] are a group, they are a station and they are responsible to each other,” Femi Iromini, CEO of Moni, told PYMNTS in an interview. “Building on this, we are moving beyond mobile money agents […] to be able to meet the needs of small businesses, while leveraging the traditional trust and community model to provide them with working capital.

To date, the company – which relies on the concepts of social trust and group responsibility – has disbursed more than $10 million to African traders and consistently achieves a 99% reimbursement rate, Iromini said.

Fight against the risk of fraud

Despite the low default rate and huge business potential, it was not all easy. As Moni grew, like any lender, she encountered people looking to defraud the business.

“The harder you work, the harder the bad guys work too,” Ironimi said, “So we’ve had experiences with cheating.”

But he sees these challenges as part of the business, stressing the need to constantly develop the product and keep tabs on lending and borrowing networks as they evolve.

He added that Know Your Customer (KYC) processes are not enough to identify criminals, and that it is important to track who gives referrals and how different customers are connected. In fact, when people default, it often happens in clusters or chains, i.e. because A invited B, if A defaults, chances are B will too, Iromini explained.

Ultimately, Moni’s business model proves that many of the practices seen in traditional bank loan issuance can be applied to community loans. The principles remain the same – KYC, anticipating defaults and calculating risk using available information. All that differs is the scale, he said.

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NEW PYMNTS DATA: HOW UTILITIES AND CONSUMER FINANCE COMPANIES CAN IMPROVE THE BILL PAYMENT EXPERIENCE

About: More than half of utilities and consumer finance companies have the ability to digitally process all monthly bill payments. The kicker? Only 12% of them do. The Digital Payments Edge, a collaboration between PYMNTS and ACI Worldwide, surveyed 207 billing and collections professionals at these companies to find out why going digital remains elusive.

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