How Nigerian fintech credit startup BFREE is helping Africans repay their loans – Techpoint Africa
In 2019, the Central Bank of Nigeria (CBN) issued a directive to banks directing them to increase the number of loans they make. As a result, there has been an increase in loan requests.
With the technology and the rise of money lending platforms like Carbon, Branch, FairMoney and Migo, offering unsecured personal loans, anyone can borrow money without going to a bank.
This means that lenders are more accessible. However, since the start of the pandemic, they have had difficult times as borrowers have not repaid their loans, citing the economic effects of COVID-19.
In 2020, the CBN activated the Global Standing Instruction (GSI) policy allowing banks to withdraw delinquent loans from any account held by a borrower.
While loan collection for BVN-linked bank accounts can be somewhat fluid, the reverse is the case for fintech lending startups.
Moreover, with millions of people demanding personal loans, the loan amounts for these platforms are getting smaller. In addition, lenders find it difficult to collect small amounts.
This challenge prompted the three co-founders – Managing Director (CEO), Julian Flosbach; Production Manager (CPO), Moses Nmor; and Chief Operating Officer (COO), Chukwudi Enyi – to create BFREE, in August 2020.
With its technology and credit management solution that makes collection processes more scalable, efficient and user-friendly, BFREE focuses on helping its clients with their finances.
“Loans have experienced a digital revolution, but credit collection must be efficient, scalable and ethical. This is exactly what we do at BFREE, ”says Flosbach.
Built by an experienced team
The team met at FairMoney, where Flosbach was managing director. Enyi was responsible for growth at Nairabox, OPay and FairMoney, while Nmor is a former team member at OPay, Kudi and FairMoney.
Their duties at FairMoney were primarily related to loan collection management. They had also all spent time in different fast growing financial startups where loan collection was an issue.
“All of the co-founders were working at large digital lending fintech startups in Nigeria, and collections were always a struggle. Therefore, we looked at the collection process to find a way to reinvent it from scratch to solve these problems, ”reveals Enyi.
Although loans have evolved digitally, loan collections are still traditionally done through smaller law firms and collection agencies, with little or no transparency or accountability.
In addition, customers are often threatened with calls, messages and emails, which Flosbach calls “a ban on impact-oriented lenders. “
“Although lenders are specialists and seem to focus on lending, they may not be proficient or focus on collections,” says Flosbach.
Therefore, it is necessary to specialize in the collection and lending of loans because the two products are different.
“Lender technology improves the actual loan product, not the collection. All of the digital lenders I know are looking to outsource their collections because of the scalability issue, ”says Flosbach.
Solve a real problem
Lending platforms inevitably end up with business process outsourcing (BPO) companies providing outsourcing services to large telecom companies or banks by managing their teleservices and customer services.
Since BPO companies are not credit professionals, the co-founders aim to help lenders get their money from their customers.
There are a number of reasons why clients fail to repay their loans. Therefore, a different approach is needed to get them reimbursed.
“No legitimate customer takes a loan with the intention of defaulting. However, life doesn’t always go as planned. Ultimately, a customer who cannot repay a loan finds himself in a financial emergency, ”explains Enyi.
To resolve this issue, they first identify why the customer failed before deploying machine language algorithms. BFREE uses a combination of a self-service platform, chat and call bots, and human contact center operations after identifying how customers can refund.
“Here, we deploy machine learning algorithms that predict the likelihood of repaying a customer and define the customer’s use case,” says Flosbach.
And if clients have not repaid their loans and interest to lenders, it is likely that BFREE will contact them.
“If a customer hasn’t serviced a balance with a lender, there’s a good chance we’ll get in touch with them and offer them our product to find a solution that works for both customers and the lender. Says Flosbach.
However, customers who do not refund are treated differently.
“Customers who don’t repay don’t want to because they don’t see the benefits of repaying. Therefore, they need financial knowledge, ”Flosbach adds.
Before these clients start repaying a loan again, the startup gives them some financial education, such as understanding the importance of loan repayment and credit score.
“We try just as much to encourage these customers to cooperate with us. For example, we offer them a discount on their loan repayments. After giving them the incentives, we teach our financial literacy classes, ”says Flosbach.
Meanwhile, they are currently testing these classes through their self-service platform to see their effectiveness on debt customers.
“We don’t use an app for our self-service platform, but a web view, which functions like a web page,” he explains.
While contacting debtors, the co-founders believe that in an ethical credit collection, not everyone would pay back.
For now, Flosbach says no other fintech startup offers the same service as BFREE on the continent.
“There is no similar innovation in Africa in our lending value chain space. This part has been overlooked for some time, and our competition consists mostly of BPO companies. “
However, the team believes that over time, competition for innovation in credit collection in Africa would increase.
“We would be happy to take this step because it is always better for end customers if options compete for the best customer value,” says Flosbach.
A sustainable model
On how BFREE makes money, Flosbach explains, “We charge a certain percentage of commission on the repayments that a lender receives. This commission depends on the size of the lender’s portfolio, the quality of the portfolio and their preferences. “
And how sustainable is that?
“It’s sustainable. Our unit economy is very strong because our solutions work very well and we generally get reimbursements that are at least 30% higher than BPO companies, ”he continues.
Although the fintech credit start-up operates a B2B2C model, with currently over 300,000 clients, it does have its challenges.
“One of our challenges is convincing lenders that there is a better way to do collection than the way they did it,” he says.
From Nigeria to Africa
The Lagos-based credit startup recently raised an $ 800,000 pre-seed round to create a solution for all emerging markets struggling with collection infrastructure in Africa. Nigeria-based Beta.Ventures, Launch Africa Ventures and GreenHouse Capital led the round.
“We focus all of our product development on helping customers with financial emergencies. Millions of customers have personal debt. That’s really what motivates us as a team, ”says Nmor.
The team is optimistic about the Kenyan market in which it is developing.
“We already have a team on the ground implementing our solution as we speak,” reveals Flosbach.
In the Kenyan market, there has been several cases where BPO companies have threatened or publicly ashamed clients, which Flosbach considers inappropriate for lenders.
While debt consumers can default on a payment due to unforeseen circumstances, the high interest on the payment is also a factor.
Remember that in digital predatory loans in Nigeria, we highlighted that the interest rate at the time of repayment is one of the reasons debt consumers do not repay quickly.
In Kenya, where many applications offering short-term advances similar to payday loans are common, the interest rate when refunding is also a problem.
The fintech credit start-up offers a personal budgeting service to debt consumers to help them spend within their means and quickly repay their loans with interest.
Through its personal consumer budgeting processes, algorithms and financial literacy, BFREE believes it will tackle growing consumer debt in Africa.