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Series V

Questions about consumer lending.

Photo by NESA by Makers on Unsplash

Nigeria is still a ‘cash-and-carry’ economy. Most consumers and small business owners and operators largely depend and rely on their savings and support from friends and relations to obtain funds to start and grow their businesses, and as a result, Nigeria is lagging behind in the consumer credit scene. Formal lending to consumers is still relatively low. To give an idea, Credit penetration in Nigeria is still below 30 per cent, while the average for Africa is 57 per cent. The global average is 132 per cent.

“Nigeria has 22 commercial banks, over 900 microfinance banks, about 100 primary mortgage banks. Nigeria has not experienced the kind of consumer credit you will expect.” — Tunde Popoola, MD, CRC FICO score.

It is hard to project credit demand in the coming years because of a number of hindrances — refusal to embrace new lending business models by banks; information asymmetry; data scarcity, but the proliferation of mobile creates opportunities for new companies to fill this gap (startups like BillionLoans, Klarna, Paylater, and Branch use hundreds of data points to approve a credit decision) etc. The result? There’s a new consumer lending startup showing up every day — and for good reason.

Mckinsey reports that 53% of income earners in Africa are between 16–34 — an age group that tends to be more aware and willing to try new products. They are in school, renting their first apartment, starting new families, etc. They are not just young; they are growing in importance and willing to spend.

This begs the question:

  • What is going to drive growth in this scene and this part of the globe?
  • How high does the ceiling go?
  • Who are the borrowers today?
  • How will their needs evolve?
  • Do the same solutions work across segments?
  • How might this work without smartphones? Can it even?

Usually, consumer lending startups serve those who have steadily growing income but are underserved by banks. The average consumer’s banking relationship is dominated by making payments, but banks are doing little about it (as this Twitter thread shows).

Given that the primary means of identification is BVN which is dependent on having a bank account, the majority of people are excluded. How then do we expand access? The national ID card often takes years to get a hold of, so, how do we verify identities? Should we push for a unified software platform like indiastack (Aadhar)? What are the broader, ethical, implications of this?

How about moving beyond credit for white goods and into other segment-specific solutions like healthcare? For example, unplanned health emergencies are one of the single largest cost for many middle and lower-middle-income families.

For FinTech startups, the big questions are around strategy, choice of segments; bottom of the pyramid, middle or top? Use cases, and distribution approaches. Pick too small a section — no matter how innovative — and it may be hard to monetize. The good news is that there are real use cases, large addressable markets, and viable economic models for the truly innovative.


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