Social lending startup Lendico launches in SA, to finance the underbanked

Africa Internet Holding (AIH) recently announced the launch of Lendico in South Africa — a digital alternative to banks that enables investors to directly fund the loans of private individuals. Using a peer-to-peer model, the platform introduces social lending that promises borrowers cheap finance while investors get great return on investment.

Under the umbrella of German startup incubator Rocket Internet, the service is NCR-approved and has so far launched in Germany (December 2013) followed by Spain, Poland, Austria and now South Africa.

In South Africa, especially for the underbanked, the barriers of gaining access to bank loans is prominent enough to make such an idea attractive. The volume of outstanding consumer credit balances is figured to be US$150-billion (R1.49-trillion). The costs associated with a loan are extremely important to consumers and this is where Lendico steps in.

So what’s Lendico’s solution? The company analyses borrowers’ credit worthiness and offers them extremely competitive rates. Investors can compare all loan projects online and enter bids as low as US$35 (R250) or more. Investors are promised returns up to 20.34%. Loan volume is said to be between R3 000 and R200 000 with an annual percentage rate as low as 7.92%.

For the analysis of the loan applications the company utilises an algorithm that classes loan projects in real time. “We have high standards when it comes to selecting borrowers, because we always have the interests of our investors in mind. Due to our cost advantage, Lendico can offer more affordable interest rates and smaller loan sums that for banks usually are not worthwhile”, says co-founder of AIH Jeremy Hodara.

The need for innovative alternatives to finance is significant but whether micro-financing will prove to be sufficient enough remains to be seen. Lendico faces local competition such as the Barclay-backed RainFin.

Crowdfunding sites such as South Africa’s Thundafund, for instance, have achieved some degree of confidence while other initiatives, targeting the underbanked, such as InVenture and Awethu Project, have also recently presented innovative methods attempting to tackle the issue of funding people who otherwise don’t have access to loan grants.

Update: As stated in the original press release, the original article indicated that Lendico promised investors returns up to 27.39%. After publication, however, Lendico has asked for this number to be changed to 20.34%.