Tuesday, August 22, 2017

THE ROBOTS ARE COMING, BE HAPPY

Last year telecom company MTN in collaboration with Commercial Bank of Africa (CBA) launched their mobile money loan product.

The product allows mobile users to access loans on their phone within minutes. The loan amount depends on a mobile owners savings, use of mobile money and other services on the MTN platform. 

Loans are processed within minutes and attract a nine percent monthly fee and loans are ordinarily for a month.

Granted that the loans are for “small” sums but for a small business man sh100,000 loan can mean the difference between shutting his stall early for the day or keeping it open to sell more.

Last week CBA reported that since October when the service was launched they have lent out more than sh25b in more than a million loans.

To put this in perspective CBA total loan book in as of June 2016 before they launched the service stood at sh41b.

The real marvel is the speed at which they are able to churn out these loans.

The back end of the loan process involves evaluating the credit worthiness of a client, getting the approvals and the eventual crediting of the clients’ accounts. Our bets banks are guaranteeing us a 24-hour response time from receipt of the application to feedback, not necessarily disbursement.

"Now with the use of algorithms which can run through these process fast enough that you can see disbursement in less than 15 minutes. In Kenya where telecom company Safricom’s M-Shwari loans have been in place for longer they are lending more money for longer periods...

It is interesting how whether a market accepts a good or service or not is often a function of how close it is or how convenient it is to access.

That I can be in the middle of traffic or in my bed in the still of the night or be miles away from any recognised financial institution and still have access not only to my own savings but to credit as well is a mind bending development for people who remember a time when it took months to get credit, which credit you could not get without collateral from stodgy bankers who seemed like they were doing you a favour to lend you money.

The ease with which one can access credit is a key driver of economies that is happening ever faster every day in Uganda is a good thing.

However for our entrepreneurs bank lending still falls short of their real needs, which is patient capital that can see them through the growing pains of a start-up enterprise.

Financing a start-up can be done using savings, contributions from friends and family. It is generally not encouraged to use bank loans as they just serve as an added cost to the business. They are better for businesses that have attained some maturity and have consistent cash flows.

"Beyond personal savings and that of friends and family, venture capital is the type of finance small businesses require to grow to the next level...

A venture capitalist often offers capital to small businesses for a share of the business, just as important may offer managerial support and access to other markets and experts. They play a handholding role, with their payout coming when they can sell their stake to another investor.

Essentially unlike the banks they share the risks of the business, help it grow to its full potential, including injecting in more funds or attracting more financing if the need arises. It is a high risk game where in 20 ventures only one may come through, providing adequate return to pay for all the other misses.

It’s a specialised field of finance that has only become really organised since the Second World War unlike banking or securities which have been around for centuries.

It is the glaring gap in our financial ecosystem and one which needs to be urgently filled. If there is one thing we are not scared of as Ugandans it is starting businesses the challenge is keeping them going. What we need is some help getting past the initial stages of the business.

Evaluating a business that has not begun to make money, assessing whether its management is adequate and what gaps remain to fill, meanwhile doing this in a cost efficient way that improves the possibility of return at the end of the day.

Venture capitalists while they have a framework through which they can process potential clients it is a largely reliant on human judgement.


But with the increased crunching power of computers, breakthroughs like the mobile loans may not be in the very distant future. And then we will really take off as an economy.

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