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Over the past few years, Africa has seen record levels of foreign direct investment, peaking at US$56.3-billion in 2013. Yet, studies still show that medium-sized enterprises (SMEs) are struggling to get their share of the pie.
Recently launched in Kenya, a relatively new startup called Solvesting has geared up to serve an estimated US$850 000-billion untapped credit market that exists in emerging markets today.
How is it planning to do this? Well, Solvesting introduces a peer to peer (P2P) lending platform for small to SMEs in emerging markets. Foreign investors, on the other side of the spectrum, can fund SMEs in developing countries, earning financial returns as well as creating social and economic impact.
CEO Ron Ben-Chaim explains that unlike other P2P lending platforms such as South Africa’s RainFin or the Rocket Internet-backed Lendico, Solvesting adds a unique twist by acting as a bridge between the investor and the lender.
“We don’t facilitate lender to borrower. Instead we use local financial partners who are already operating on the ground,” he Ben-Chaim. “We build a network of financial partners and piggy backing on their infrastructure to get access to their existing loans. We then analyse these loans with our own risk assessment algorithms.”
After buying-off loans from professional financial services — which can range anything from US$5 000 to US$200 000 — Solvesting’s platform enables them to be crowdfunded by retail and institutional investors.
From the investor’s side, they can choose to back small companies with as little as US$25 and as much as US$100 000.
“The investors not only achieve a nice financial return of 15% on principle, but also provide a positive impact in much needed areas of the world,” he explains. The service charges a commission of 3% to 4% per annum on the declining loan balance from the loan portfolio of each investor on the platform.
So essentially these loans are vetted twice: First, by the accredited financial institution and then by Solvesting through its algorithm. Still, as all investments go, Solvesting loans are not guaranteed but often they are backed by collateral.
While Solvesting is not keen to disclose the amount of clients or loans they currently have access to, Ben-Chaim says that it’s had a lot of positive response since it launched its Kenyan arm a week ago. “A lot of people are getting really excited so we’re hoping to grow really fast,” he says.
Of course in five years Solvesting hopes to become the leading P2P lending marketplace for emerging markets, managing over US$100-million in loans, with presence in more countries across Africa and the rest of the world.
Global team means global advantage
Ben-Chaim also tells Ventureburn that Solvesting has the advantage of having a global vision. Consisting of a total six employees and a few advisors, Solvesting is spread all over the globe. Most of the team sits in Tel Aviv, Israel while another is based in Madrid and the general manager in Kenya.
“The model requires capabilities on both sides of the Atlantic and compliance with local regulations,” notes Ben-Chaim. “Our team is well-suited to the Kenyan market, and centrally located between a number of potential developing countries.”
Ben-Chaim says that he came up with the idea during his time at IE Business School in Madrid, Spain. While working on a project that dealt with funding for local solar projects in Africa, he realised that there was a massive lack of funding for local entrepreneurs and small business. From there the idea evolved of creating a marketplace for P2P lending that would enable a massive influx of cash as to enhance and generate growth of the local economies in these emerging markets.
Solvesting is totally bootstrapped. “We’re in the process of raising a seed round at the amount of US$750 000,” claims Ben-Chaim, and says that they’re looking to both local and international venture capitalists.
Speaking about equity crowdfunding, Ben-Chaim says that it’s only reached the tip of the iceberg. “The potential is unbelievable but communicating to investors is still crucial for this industry to grow,” he explains. “A lot of them still need to understand that this isn’t a liquid investment and that equity investments take time.”
Furthermore, he notes that some of the company’s biggest challenges are building credibility in the space and overcoming stereotypes regarding investments in Africa. Although Ernst & Young found that foreign direct investment has increased by 4.7% in sub-Saharan Africa last year, a lot of investors are still skittish.