Alibaba is the world’s most valuable retailer but it has no inventory. Airbnb is the world’s largest accommodation provider but, like Alibaba, it has no real estate. Uber is now the world’s largest transportation company but it doesn’t own vehicles. Similar business models are on the rise, which begs the question whether one day the world’s largest lender will really have banking facilities. It is not farfetched in an innovatively evolving environment. The latest kid on the fintech block and with similar ambition as Uber and Airbnb is Ubapesa developed in Kenya. This peer to peer lending and borrowing application is premised on crowd funding. The app facilitates real-time lending and borrowing to and between customers with disbursements via M-Pesa. Before a transaction can be approved, the app uses various methodologies to profile the credit-worthiness of the prospective lenders and borrowers, including using data from TransUnion who are a licensed Credit Reference Bureau. The application is open to all with ticket sizes ranging from Sh500-7,000. They have three loan tenures of 10, 20 and 30 days, each attracting a facilitation fee of 9, 10 and 13 per cent respectively. Out of each lending that happens on the application from the 9, 10 and 13 per cent facilitation fees, the lender keeps up to 42.5 per cent with the rest being shared as follows; UbaPesa platform fees and a component for in house insurance for lender’s principal. There are obligations to both the lender and borrower. To be a lender, one has to put money into their wallet represented as their mobile number through M-Pesa Paybill. With funds available in one’s account, the lender will then place a lending request where the lender will select what they anticipate to earn as a return on his/her money upfront upon successful loan issuance. The lender states the lowest credit score they are willing to lend and the duration of credit. Should there be a matching borrower meeting the above criteria, the app will automatically match the two and issue the loan and disburse to M-Pesa. Borrowers go through a credit check upon download of the app. The client is profiled for credit-worthiness through TransUnion and allocated a credit score and a matching loan limit. One can only borrow up to the maximum allowable limit as per the credit score and can only have one loan at a time. The borrower picks the amount to borrow and for what period. On repayment, the money is credited to one’s wallet, which they can choose to on-lend or withdraw to their M-Pesa accounts in real time. In the event of loan recovery, UbaPesa is responsible for collections and recovery (neither the lender and borrower know each other). The company follows up on borrowers to repay. After 10 days from the due date, any loans that are in default are referred to the external debt collectors. In the event of default, the company offers a 60-day money back guarantee on the outstanding principal from their internal pool of insurance. The company has had a fair share of challenges but they have always been up to the task building extensive data to seal loopholes. With a customer base of more than 100,000, they have managed to lower their initial default rate of 20 percent to less than 10 per cent. This has been achieved through the alternative credit scoring and analysis of the user behaviour on the collected data using the inbuilt Artificial Intelligence and algorithms. New features include borrowers receiving bids from different lenders and deciding whom to borrow from. Borrowers with good credit score will enjoy lower lending rates. Ubapesa is on Google Play. Bitange Ndemo is an associate professor at the University of Nairobi’s School of Business. The views expressed in this article are of the author.
