How Nigerian Credit Fintech Startup, BFREE, Is Helping Africans Repay Their Loans
How Nigerian credit fintech startup, BFREE, is helping Africans repay their loans
In 2019, the Nigerian Central Bank (CBN) issued a directive to banks requiring them to increase the amount of loans they provide. As a result, loan requests increased.
With the advancement of technology and the rise of money-lending platforms such as Carbon, Branch, FairMoney, and Migo, anyone can borrow money without visiting a bank.
This increases lender accessibility. However, they have struggled since the pandemic began, as borrowers have failed to repay their loans, citing the economic effects of COVID-19.
In 2020, the CBN implemented the Global Standing Instruction (GSI) policy, which allows banks to withdraw defaulting loans from a borrower's account.
While loan collection for BVN-linked bank accounts may be relatively straightforward, credit fintech startups face a different set of challenges.
Additionally, as millions of people seek personal loans, the lending amounts available through these platforms become smaller. Additionally, lenders face difficulties collecting on small amounts.
This obstacle prompted the three co-founders — Julian Flosbach, Chief Executive Officer (CEO); Moses Nmor, Chief Production Officer (CPO); and Chukwudi Enyi, Chief Operations Officer (COO) — to launch BFREE in August 2020.
BFREE focuses on assisting its customers with their finances through its technology-enabled and credit management solution, which makes collection processes more scalable, efficient, and user-friendly.
“While lending has undergone a digital transformation, credit collection must remain efficient, scalable, and ethical. That is precisely what BFREE is doing,” Flosbach states.
Built by an experienced team
The team met while Flosbach was General Manager of FairMoney. Enyi previously served as the Head of Growth at Nairabox, OPay, and FairMoney, while Nmor was a member of the OPay, Kudi, and FairMoney teams.
Their primary responsibilities at FairMoney involved loan collection. They'd also worked at various fast-growing financial startups where loan collection was a challenge.
“All of the co-founders previously worked in large Nigerian fintech companies focused on digital lending, and collections were always a struggle. As a result, we examined the collection process in order to devise a way to reinvent it from the ground up in order to address these issues,” Enyi explains.
While lending has evolved digitally, loan collection continues to be handled traditionally by law firms and smaller collection agencies, with little or no transparency or accountability.
Additionally, customers are frequently threatened via phone calls, text messages, and emails, which Flosbach describes as "a no-go for impact-oriented lenders."
“While lenders are specialists and appear to be focused on lending, they may lack collection skills and expertise,” Flosbach clarifies.
As a result, specialization in loan collection and lending is necessary, as the two products are distinct.
“The lenders' technology enhances the lending product itself, not the collection process. Due to the scalability issue, every digital lender I know looks to outsource their collections,” Flosbach says.
Solving an actual problem
Lending platforms invariably partner with Business Process Outsourcing (BPO) firms that manage large telcos or banks' teleservices and customer service.
Due to the fact that BPO firms are not lending professionals, the co-founders' goal is to assist lenders in collecting money from their customers.
Customers default on their loans for a variety of reasons. As a result, a unique strategy is required to compel them to repay.
“No legitimate customer enters into a loan with the intent of defaulting. Nevertheless, life does not always go as planned. Finally, a customer who is unable to service a loan is in a financial crisis,” Enyi explains.
They address this by first determining why the customer defaulted before deploying machine learning algorithms. After determining how customers can repay, BFREE employs a combination of a self-servicing platform, chat and call bots, and human contact center operations.
“Here, we use machine learning algorithms to forecast a customer's likelihood to repay and define the customer's use case,” Flosbach writes.
Additionally, if customers have been delinquent in repaying their loans and interest to lenders, it is likely that BFREE will contact them.
“If a customer has not been servicing a lender's balance, there is a good chance we will contact them and offer our product in order to find a solution that works for both the customer and the lender,” Flosbach says.
On the other hand, non-repaying customers are treated differently.
“Customers who do not repay do so because they do not see the value in doing so. As a result, they require financial literacy,” Flosbach continues.
Before such customers resume loan servicing, the startup provides them with financial education, such as the value of loan repayment and credit score.
“We make every effort to entice these customers to cooperate with us. For instance, we provide them with a discount on loan repayments. After we provide them with incentives, we conduct financial literacy classes,” Flosbach explains.
Meanwhile, they are testing these classes via their self-service platform to determine their effectiveness with debt customers.
“We do not use an app for our self-servicing platform; instead, we use a webview that functions similarly to a webpage,” he explains.
While they reach out to debtors, the co-founders believe that not everyone will repay in an ethical credit collection.
Flosbach asserts that there is currently no other fintech startup on the continent offering the same service as BFREE.
“In Africa, there is no comparable innovation in our segment of the lending value chain. This area has been largely ignored for a long period of time, and our primary competition is comprised of BPO firms.”
However, the team believes that competition for credit collection innovation in Africa will intensify over time.
“We would welcome this step because it is always better for end-customers when options compete for the highest customer value,” Flosbach asserts.
A sustainable model
Flosbach explains how BFREE earns money: "We charge a percentage of the repayments that a lender receives." This commission is determined by the lender's portfolio size, quality, and preferences.”
And how long-term is that?
“It is defensible. We have strong unit economics because our solutions work well, and we typically achieve at least 30% higher repayment rates than BPO firms,” he continues.
Despite the fact that the credit fintech startup operates on a B2B2C model and currently has over 300,000 customers, it faces obstacles.
“One of our challenges is convincing lenders that there is a more efficient way to collect than they have been doing,” he explains.
From Nigeria to Africa
The Lagos-based credit startup recently raised a $800,000 pre-seed round to develop a collection solution for all emerging markets in Africa. Beta.Ventures, Launch Africa Ventures, and GreenHouse Capital, all based in Nigeria, led the round.
“We devote the majority of our product development efforts to assisting customers in financial distress. Millions of customers are personally in debt. This is what truly motivates us as a team,” Nmor asserts.
The team is optimistic about the Kenyan market into which they are expanding.
“We already have a team on the ground implementing our solution,” Flosbach explains.
There have been several instances in the Kenyan market where BPO companies have threatened or publicly shamed customers, which Flosbach believes is inappropriate for lenders.
While debt consumers may miss a payment due to unforeseen circumstances, the high interest rate on the debt also plays a role.
Recall that in our article on digital predatory lending in Nigeria, we discussed how interest rates on debt repayment are one of the reasons debt consumers do not repay on time.
In Kenya, where a plethora of apps offering short-term advances comparable to payday loans are prevalent, the interest rate charged on repayment is also a concern.
The credit fintech startup provides debt consumers with a personal budgeting service that teaches them how to live within their means and repay their loans with interest on time.
BFREE believes it can address Africa's rising consumer debt through its consumer personal budgeting processes, algorithms, and financial literacy.
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