No products in the cart.
Microlending 2 – Where Are They Lending?
To put it simply, this microloan company operates in Kenya. Each loan ranges from $30 to $50, and the borrowing term is only 30 days! Reportedly, they receive nearly 8 million applications per month, but only approve around 1 million new borrowers monthly due to capital constraint. So far, they’ve been able to lend out about $55 million each month.
When I heard “Kenya,” my first reaction was: Is lending in Africa even safe?
That’s where understanding the mechanism of microloans in Africa becomes important.
The person I spoke with, Ruddy, started out as a lender himself. After making money in the space and gaining confidence in the model, he joined the company. 😂
According to Ruddy, the concept of banking in Africa is very different from what we’re familiar with in North America. Here, banks are a part of everyday life—most people have multiple bank accounts, credit cards, and access to loans. In Kenya, however, if you want access to banking services, you have to be an “A-list” customer: someone with good credit, a stable job, and a high income. As a result, banks serve only a small percentage of the entire population, and the majority of people can’t even walk through the doors of a bank, let alone open an account or get a loan.
This means that in a country as large as Kenya, the majority of people’s financial needs remain unmet, leaving an annual gap of around $20 billion! These individuals don’t have credit scores, stable jobs, or bank accounts, making it impossible for them to obtain loans and leaving them stuck below the poverty line.
For many of them, the only viable path to survival is becoming a street vendor.
Lending happens to be my cup of tea. We started in private lending over a decade ago, so I know a thing or two about lending lol No matter what the underlying asset is, the logic behind lending remains the same. The two core questions are:
- Why won’t banks lend, but you’re willing to?
- Will the borrowers actually make money after taking the loan so it’s a sustainable practice?
If these two questions can be answered convincingly, then the business generates a sustainable, mutually beneficial cycle. But if only one side profits, the model won’t last.
Next time, I’ll dive into the underlying logic behind these borrowers. Stay tuned!