Cape Town - A new start-up aims to help out borrows with a digital platform that directly links them to investors.
Lendico, the latest venture by Africa Internet Holding (AIH), offers loans from R3 000 to R200 000 and the company is compliant with South African credit legislation.
"Our team has spent a great deal of time and energy making sure that our business model is compliant with all local laws and regulations in SA. This is a very important point for us; we're secure, legal, and trustworthy," Jeremy Hodara, co-founder of AIH told News24.
So how does it work?
Prospective borrowers enter the details of their loans on the Ledico site where their credit worthiness is analysed.Preference
Borrowers adjudged to be the most reliable are given interest rates starting at 7.92% and investors make bids starting at R250.
But don't expect that any Johnny-come-lately will be granted a loan. Hodara indicated that borrowers with a strong credit history will be given first preference and promised greater returns for investors.
"On the investor side, we're targeting investment-savvy individuals interested in social lending, and better returns on their investments than traditional fixed deposits."
The idea of the platform is to circumvent traditional banking in SA where the formal banking population only numbers 22.5 million adults, according to a FinScope South Africa survey.
Financial alternatives have developed in the absence of formal banking that allow people to access finance.
Systems such as stokvels and burial societies have made finance available in communities, but these are legally forbidden from holding more than R10m in assets.
South Africa's microloan industry is mature and expanding, says a paper by the Centre for Microfinance at the University of Pretoria.Pressure
"The overall profile of the microfinance sector in South Africa which emerges from these pages is one of a maturing industry, still expanding and innovating but past the early stage of rapid growth for two of the primary product categories: Micro deposit services and salary-based microloans," says the report edited by Barbara Calvin and Gerhard Coetzee.
The report highlighted the pressure on deposits at the major banks.
"The challenge now for the banks is to encourage higher usage of the deposit services. A fear of fees and other debits cause a large proportion of deposit holders to withdraw 90% of their funds within a few days of being paid."
As economic conditions remain tough, access to finance becomes a critical challenge for economically active individuals and Lendico platform is automated to facilitate a speedy process.
However, Hodara said that risky borrowers could be identified in the system in partnership with credit bureaus to ensure that there was minimal risk for investors.
"Our website and our IT and Risk departments are in strong connection with the credit bureau. Additionally, as soon as the website and the software behind it receive the data of the borrower (the data used to fill out the application form to become a borrower with Lendico) this data is sent to the credit bureau that sends back to us the score for the borrower that defines his risk class (depending on his probability of default)."Lendico
loans are granted in terms from 12 to 60 months and the company charges investors 1%, and up to 4% for borrowers.
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