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Last week, Aki Kalliatakis asked what lessons startups can take from the collapse of the African Bank. Surely this could have been avoided with precautionary measures, though online lending marketplace RainFin’s CEO Sean Emery argues that it’s the traditional lending model that’s in need of disruption. Geared for individuals and recently businesses, Emery suggests that RainFin’t peer-to-peer (P2P) lending model might be the solution for today’s fragile financial landscape.
Launched in 2012, and recently supported by Barclays Africa the online marketplace connects borrowers with lenders, essentially investing in each other. Emery says that his startup offers a better solution for the current lending model most people rely on:
“The old-banking model of borrowing from Peter to lend to Paul is fragile as the cost of funding gets more expensive. Traditional banking players continue to take money from depositors and investors at the lowest rate and lend it out at an ever-increasing margin to cover infrastructure. It’s self-fulfilling to raise interest rates to support costs.”
Emery further notes that, in the US, the P2P marketplaces facilitates about US$5-billion in 2014 but at less than 40% of the operating costs per loan granted compared to traditional banks.
In March this year Barclays Africa acquired 49% of RainFin’s business and, due to RainFin’s progress, has increased its appetite to, as an institution, be an active direct lender on the platform. Via a partnership with M2North, its customers can access finance via RainFin’s platform.
“Entrepreneurs and SMEs are given a tough deal: Kick-start the economy and create jobs, but find your own finance. We aim to change that by giving SMEs access to finance through the peer-to-peer lending system,” says Emery. “It’s a phased approach and one that will see us well into next year, but our partnership with M2North is the first step in achieving this.”
In South Africa, the industry is still in it’s infancy. South Africans are used to traditional banking and less comfortable with technology he suggests. That’s changing however:
Since 19 August, RainFin’s has seen a rate of 350 customers registered per day who together represents an average of R7,5-million in potential loans. Emery further explains:
“However, less than 10% of these applications pass our screening after undergoing a detailed moderation, scoring and affordability assessment. As such, 18 new loans at a total loan value of around R400 000 are listed on the online marketplace for investors to bid on every day.”
The company boasts an average investors interest of 11%. A small intermediary fee applies to every completed transaction. Investors are charged R35 per month and a 1% service fee. Borrowers, on the other hand, pay the same amount for a monthly fee, R18.50 credit check fee and a 2.85% service fee.
RainFin suspects R200-million in loans by December, 2014 and says it’s on the right track to disrupt the financial industry.