Have you ever waited for 2 weeks to hear a response of whether your loan application has been approved or declined? Only for the application to be declined. That sucks, right? Welcome to the Age of Credit Decline. Now that banks have reduced consumer lending to productive sectors of the economy, who will lend to credit-hungry Small to Medium Enterprises (SME’s) to finance their operations?
How did we get to the Age of Credit Decline in the first place?
The post dollarization era in Zimbabwe was met with generous but careless hands of banks who indiscriminately issued a credit to customers without rigorous credit risk assessment. This caused a widespread problem of non-performing loans (NPL) in the banking community. Saddled with NPL’s, banks adopted stringent lending policies that reduced lending to companies and of course, SME’s were hit hardest
Then technology comes.
Thanks to technology, the fintech industry has introduced a new lending model called ‘Lending as a service’ (LaaS) that seeks to streamline the traditional lending model and make it snappy for consumers to access credit or reapply for loans.
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What is LaaS?
LaaS is spearheaded by fintechs such as Ezbob and Spotcap. This model uses software that automatically does the credit assessment or credit scoring of a customer’s bank account data and revenue generation in a very short period of time.
For example, Ezbob takes 30 minutes to provide finance. It is targeted at SME’s s that do not require big loans ( by big they mean above $5million ) to finance their activities and of course, the company will know timeously whether a loan has been approved or declined.
We have all heard about big data and machine learning. Computers are able to make quick decisions by analyzing regular data such as your account activity to determine whether you are a high-risk borrower or not. They do this much more efficiently than humans.
SME’s and LaaS: The perfect match?……..Yes
SME’s are time sensitive entities compared to larger companies hence they need a lender who is reflexive to their needs. Business lost while they fetch and wait for loans from banks can affect them significantly. That is why Landing as a service fintechs should be welcome in our financial system.
Can it be a success in Zim?
The increasing number of SME’s in Zimbabwe is a great opportunity for LaaS fintechs. They could be better at serving SME’s than large bureaucratic banks.
Does it mean we have to do away with banks?
With all the cosmetic reasons and expressions I have used for the LaaS model, some of you may have already concluded that I am insinuating that banks should lose their lending arm in favor of LaaS fintechs.
But no….banks remain an excellent way for companies to find funding since they can lend huge amounts. In fact, many LaaS fintechs are working with banks rather than to compete with them. For instance, Ezbob is partnering the Royal Bank of Scotland/NatWest which is a traditional bank.
We kind of have an LaaS Fintech in Zimbabwe
We have said it here before that the Steward Bank business model reveals that this company is more of a fintech company than a bank. Their Kwenga product comes with a merchant portal where a Kwenga small business client can apply for a loan.
The assessment of that loan application is done by a computer algorithm which will just be assessing the history of that client. They are not yet fully doing LaaS because currently, customers get to access the loan after 72 hours. They say this is partly because the service has only been available for less than 3 months.
What do you think about the use of computers to make decisions such as who gets a loan or not? Do you think it’s sustainable that businesses can access loans in a matter of minutes?