MICROFINANCING
When the going gets
tough … the tough go digital
Microfinancing in South Africa is on the increase, writes Samantha Perry
The lending industry doesn’t have particularly high barriers to entry. In addition, low-cost sales channels such as the internet have
opened up the industry to more competitors
T
he digital lending space is relatively new in South Africa.
While the banks have offered loan facilities via electronic
channels for some time – loans via ATMs, overdraft
applications via internet banking and even homeloans
online (from Nedbank) – online-only lenders are a new
addition to the sector. These are taking two forms: peer-to-peer lending
schemes such as RainFin and Lendico, and traditional loan providers
such as Wonga.
Peer-to-peer schemes pair humans with money with humans who
need money, via an online exchange. There is no bank in the middle
and no banking licence is required – neither RainFin nor Lendico takes
deposits or issues loans; rather, they hold it in trust on a third party’s
behalf.
The model was recently given a vote of confidence by Barclays’
purchase of 49% of RainFin, which launched in 2012. Lendico is much
newer, having been launched by Africa Internet Holding (AIH) in April.
AIH is supported by MTN, Millicom and Rocket Internet, and operates
six ventures in nine countries in the e-commerce space.
Wonga provides small short-term loans, online. Customers provide
limited information (name, identity number, employment status, and so
on) and approval is almost instant. Customers can apply for a maximum
of R2 500 initially. Interest rates amount to 60% over a year, but Wonga
prefers not to lend amounts for more than a month, it says. It doesn’t
differ materially from microfinanciers such as Bayport, which provide
unsecured credit and associated products, except its service is provided
online only, and online end-to-end.
Says Sugendhree Reddy, Head of Personal Banking at Standard Bank:
“The lending industry doesn’t have particularly high barriers to entry.
In addition, low-cost sales channels such as the internet have opened up
the industry to more competitors.
“But selling loans via the internet does come with some limitations.
While it might lower costs, the limited products on offer mean that
such credit providers have a limited understanding of the customers’
needs and risk. What is key for new companies is ensuring that loans
are extended to customers who will be able to repay their loans. This
is a capability that will have to be demonstrated over time, and will
differentiate the successful businesses from the others.
“The normal regulatory requirements with regard to affordability
assessments are applicable for loans of this nature; however, it should
be noted that non-banks such as retailers are not required to comply
Edition 10
Digital Lending.indd 29
BANKER SA
29
2014/06/24 1:52 PM