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Harare - Zimbabwe-based telecoms company through its mobile-based money product EcoCash Save is now offering monthly loans to its subscriber base of about 1 million.
Offering loans is not a new thing in this world; banks have been doing that since 2000 BC.
But offering loans through a mobile-based platform with no interest payment must be a first. Furthermore, offering loans without asking for security is as good as throwing your hard-earned money into a well.
This is exactly what Econet is offering its customers. The telecoms group, through its EcoCash platform backed by its banking arm Steward Bank, last week launched a new product where customers can access loans through their mobile phone.
The loans have no paperwork involved and are done over the USSD platform. The loan amounts vary from US$5 to $500. The system automatically calculates an EcoCash subscriber’s loan limit depending on monthly airtime usage and EcoCash transactions.
Granting of loans will be based on the borrower’s record of transacting through EcoCash as well as his record of saving at least $5 a month through EcoCashSave. To date more than $20m has been saved on the EcoCashSave platform, a few months after the product was launched.
EcoCash CEO Cuthbert Tembedza said the credit rating system will measure how active you have been on your wallet, how much you spent monthly and airtime spent, thus in simpler terms spending patterns are key.
Disruptive innovation
But it is the granting of loans, interest free, that I believe is going to be a game changer. The service, which is more of a disruptive innovation, has the potential to draw more customers to Econet and its subsidiary Steward Bank.
As a disruptive innovation the product has the potential to create a new market and value network that will eventually disrupt the existing market while at the same time displacing earlier banking technology. The service however also has the potential to lose money for Econet.
Let me put this into context. The service is being offered in a country where people are saddled with debt and struggling to make ends meet. A chief executive at one of the listed clothing retailers recently said some civil servants are getting zero net salaries after their debts are deducted at source.
It is being offered in a country where non-performing loans have ballooned to an uncomfortable banking average of 15.92%.
Even at company level, many companies have failed to pay their debts resulting in foreclosures, attachment of properties, auctioning of property offered as collateral by banks, etc. Reputable companies that come to mind include CAPS Holdings whose properties were nearly auctioned for failing to service or pay back loans.
Bread-making company Lobels has been taken over by banks after it failed to service or repay a loan. Star Africa Corporation, PG Industries, RioZim, the Cotton Company of Zimbabwe and many other listed companies are still at risk for failure to service or pay back their loans.
It is against this background that you begin to ask what Econet has seen that others are not seeing.
Seriously offering someone a loan based on people’s track record and trusting that the loan will be repaid in a month’s time is akin to putting God on test.
To offer such loans interest free is even worse: how do you account for risk, how are you going to cover for default?
Econet founder Strive Masiyiwa is one man who will tell you that his back is always covered. Only trust and faith in God can result inmaking such a bold decision.
I have spent the past two months reading his Facebook posts about how he conducts his business, and I would like to believe he has done his homework.
After all, he says he does not go into any venture before God tells him to do so. One of his teachings in business is that before you venture into any business, try to get understanding first and I would like to believe that his team understands exactly what they are doing.
One would ask, what’s in it for Econet if loans are going to be offered interest free? The loans will attract a 5% levy for handling fees. But there is also another catch - after a client is granted a loan, the money will be deposited into his EcoCashSave account.
You can only withdraw that money into your EcoCash account, and getting it out of that account attracts charges. To get the maximum loan of $500 out of the system into cash one will have to part with $5, a 1% charge. Econet will thus make money through its various EcoCash charges.
Then there is the issue of default. How is the group going to handle that? I think for someone who defaults, it means saying goodbye to his mobile line. I think you will be barred from making not only transactions through EcoCash, but also from making any communication through your Econet number.
Yes, chances are that you can switch to another network but such a decision will come back to haunt you. Emergencies are there and one day you will need to get a quick loan, but unfortunately Econet will not be in a hurry to help you out.
As they say, once trust is lost it's hard to get it back.
- Fin24
Offering loans is not a new thing in this world; banks have been doing that since 2000 BC.
But offering loans through a mobile-based platform with no interest payment must be a first. Furthermore, offering loans without asking for security is as good as throwing your hard-earned money into a well.
This is exactly what Econet is offering its customers. The telecoms group, through its EcoCash platform backed by its banking arm Steward Bank, last week launched a new product where customers can access loans through their mobile phone.
The loans have no paperwork involved and are done over the USSD platform. The loan amounts vary from US$5 to $500. The system automatically calculates an EcoCash subscriber’s loan limit depending on monthly airtime usage and EcoCash transactions.
Granting of loans will be based on the borrower’s record of transacting through EcoCash as well as his record of saving at least $5 a month through EcoCashSave. To date more than $20m has been saved on the EcoCashSave platform, a few months after the product was launched.
EcoCash CEO Cuthbert Tembedza said the credit rating system will measure how active you have been on your wallet, how much you spent monthly and airtime spent, thus in simpler terms spending patterns are key.
Disruptive innovation
But it is the granting of loans, interest free, that I believe is going to be a game changer. The service, which is more of a disruptive innovation, has the potential to draw more customers to Econet and its subsidiary Steward Bank.
As a disruptive innovation the product has the potential to create a new market and value network that will eventually disrupt the existing market while at the same time displacing earlier banking technology. The service however also has the potential to lose money for Econet.
Let me put this into context. The service is being offered in a country where people are saddled with debt and struggling to make ends meet. A chief executive at one of the listed clothing retailers recently said some civil servants are getting zero net salaries after their debts are deducted at source.
It is being offered in a country where non-performing loans have ballooned to an uncomfortable banking average of 15.92%.
Even at company level, many companies have failed to pay their debts resulting in foreclosures, attachment of properties, auctioning of property offered as collateral by banks, etc. Reputable companies that come to mind include CAPS Holdings whose properties were nearly auctioned for failing to service or pay back loans.
Bread-making company Lobels has been taken over by banks after it failed to service or repay a loan. Star Africa Corporation, PG Industries, RioZim, the Cotton Company of Zimbabwe and many other listed companies are still at risk for failure to service or pay back their loans.
It is against this background that you begin to ask what Econet has seen that others are not seeing.
Seriously offering someone a loan based on people’s track record and trusting that the loan will be repaid in a month’s time is akin to putting God on test.
To offer such loans interest free is even worse: how do you account for risk, how are you going to cover for default?
Econet founder Strive Masiyiwa is one man who will tell you that his back is always covered. Only trust and faith in God can result inmaking such a bold decision.
I have spent the past two months reading his Facebook posts about how he conducts his business, and I would like to believe he has done his homework.
After all, he says he does not go into any venture before God tells him to do so. One of his teachings in business is that before you venture into any business, try to get understanding first and I would like to believe that his team understands exactly what they are doing.
One would ask, what’s in it for Econet if loans are going to be offered interest free? The loans will attract a 5% levy for handling fees. But there is also another catch - after a client is granted a loan, the money will be deposited into his EcoCashSave account.
You can only withdraw that money into your EcoCash account, and getting it out of that account attracts charges. To get the maximum loan of $500 out of the system into cash one will have to part with $5, a 1% charge. Econet will thus make money through its various EcoCash charges.
Then there is the issue of default. How is the group going to handle that? I think for someone who defaults, it means saying goodbye to his mobile line. I think you will be barred from making not only transactions through EcoCash, but also from making any communication through your Econet number.
Yes, chances are that you can switch to another network but such a decision will come back to haunt you. Emergencies are there and one day you will need to get a quick loan, but unfortunately Econet will not be in a hurry to help you out.
As they say, once trust is lost it's hard to get it back.
- Fin24
