Mobile peer-to-peer lending: An innovation still brewing at the backyard

courtesy of www.nerdwallet.com

I was a bit disappointed at the recent Pivot East Africa camp held at Sheraton Kampala, It was a nice event with many great and bright people participating from across all the East African countries. My disappointment was borne mainly out of what I think was an absence of a ‘Wowing’ brilliant idea from amongst the participants.

Truth is, I was most interested in the startups that registered under the finance category where I wished I could find some startups with  market or life changing ideas. (Admittedly the category winner GO Finance Company has a good case)

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One area where I would love to see progress in is the peer to peer lending business, be it from a startup or an already existing institution.

What is Peer to Peer Lending

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courtesy of http://www.proximux.com/

Peer to peer lending  is the practice of lending money to unrelated individuals without going through all the trouble of financial institutions like banks through some sort of platform like a website or SMS. For example Alice in kabala can

lend Bob who lives in Kampala UG Shs 20,000($7.72) without ever knowing Bob and Bob doesn’t have to know or provide any sort of collateral to Alice. The platform owner must put in place checks to ensure Alice never incurs any loss and that Bob never forfeits on his debt.

What a P2P lending platform does is to connect people with money who are willing to lend it out to credible borrowers. It also facilitates the money exchange to some extent.

Currently if you wanted to borrow money, you can get it from a financial institution, from money lenders or from friends and family and we all know what is involved in all of this.

Case for P2P Lending

My case for P2P lending is purely based on the business’ monetary muscle, just think of how much banks or money lenders make off from borrowers and you will know how serious this business is. It might take a while to break even but when it happens there might never be a turning point again.

Everyday there is someone somewhere out there who needs an extra UG Shs 20,000($7.72) maybe for transport or to buy something. These cases usually need small amounts of money in about 3 hours or a day at most. Currently if you ever find yourself in such a fix and your friends plus family are not in a position to bail you out your caus

e will be doomed.

Implementations Elsewhere

One of the most successful P2P lending platforms in the world Lending Club generated $34 million revenues in 2012 and is forecasting sales of $90 million for 2013,  P2P Lending Volume Tops $700 Million

Of course the African setting is a lot different with more demands and challenges and will require a unique solution but hey, surely someone is up to the task.

Kiva Microfunds in Kenya earlier this year rolled out Kiva Zip  which is an experimental site that enables direct loans to Kenyan entrepreneurs and will also enable P2P micro lending using M-PESA.
RainFin  in South Africa has now been operating for more than a year.

Others include; Zidisha (International), SocietyOne  (Australia), Creditease (China), Zopa (UK) and many others.

Why is it taking long?

There is one mistake most unsuccessful people make, they don’t plan or see the long term plan for whatever they are doing. The other mistake most unsuccessful people make is to plan for the long term and lose focus of the now. Most of the people I have talked to about P2P lending always ask me the same question, how will you ensure borrowers pay back?  Always my answers are weak even to me. To most people the lack of an answer to this single question is enough to dismiss the business opportunity that lies in P2P lending.

As far as I know the slow progress or nonexistent P2P lending platform in the country is due to the fact that we are more concerned as to what will fail than what will work. It might be a risky venture but it wouldn’t be the first, check out these gambles that paid off; 1,2

I haven’t given up yet, I am sure there are some geniuses hard at work developing or planning to develop a P2P lending solution. I know a couple of people who are interested in this area but haven’t yet launched or come up with feasible working prototypes while others would welcome the chance for partnership (Mr. Bagyenda at Digital Solutions or Mr. Mushabe at SMSONE are two geniuses I know who would be interested in partnering or developing such a platform).

Way Forward

This isn’t a pitch for P2P lending solutions; instead I shared this with the hope that it will give a few people some ideas which they might eventually turn into business ideas.  Hopefully the next time Pivot comes swinging its opportunities we shall have more interesting ideas in the finance category.

  • Eristaus

    Denis, This is a very brilliant article clearly stating the case for P2P Lending
    If we could find out how the people/Institutions you mention have successfully done it may be we could have answers to our own questions. I am most interested in Kiva and how they have used that to do Agro Financing for Smallholder farmers.