L-Pesa is expanding beyond the African continent into Asia, with its finance offerings. In India, L-Pesa is looking to support economic growth. This service will assist customers as well as small business owners build up their credit scores and develop a credit history. This is in line with the introduction of the Aadhaar Identity system which is a major innovation in financial services. This sounds exciting, but you may still be wondering, what is L-Pesa? Here is a brief introduction.
L-Pesa stands out as a progressive financial service provider. Since inception, the success of L-Pesa is indisputable. It is now available in several countries, across continents with one key purpose. That purpose is financial inclusion for all. L-Pesa started to offer a fundamental finance service to anyone with access to a mobile phone by offering microloans. It filled in a gap where traditional lending was failing. In developing countries, bank loans were available for the wealthy. The poor were able to access microfinance services. The gap existed in the space in-between which is where L-Pesa fits in.
To get this, you need a quick insight on microfinance and its history. Traditionally, microfinance was targeted towards poor farmers, as well as small business owners. Those who were in the middle class had limited or no access to credit services. With the use of technology and innovation, L-Pesa has offered a solution to this problem.
The Origins of L-Pesa
The origins of L-Pesa can quickly be traced back to the founder & CEO, who is also the managing director of this company. He has years of experience in the developing world, especially with projects around agriculture and tourism. It was through his work while in Southeast Asia that he encountered microfinance. He now has several teams across the world working on L-Pesa. In Africa, USA and India, the team work on technology, marketing and accounting. In Tanzania, Kenya and Uganda, there are teams that have been focused on development and roll out. It is in Kenya & Tanzania that the background checks, credit approvals and customer service are done.
How L-Pesa Comes Together
L-Pesa continues to grow due to its firm foundation. It was incubated for a decade before being launched. Today, there are a team of back office staff who are on hand to offer support for high volume loan origination. There were four important market forces that converged to lead to a successful introduction. They were: –
- Big Data, Artificial intelligence and Blockchain
- Alternative Credit Data
- Mobile Technology
- Biometric Identity
L-Pesa also uses a well refined financial model where users can grow from small loans to larger loans based on a credit score system. This helps to ensure that the technology is kept at a loss ratio below 10%. This system leads to sustainability and success in financial growth, especially for individuals and small businesses.
The technology used has a strong focus on automation, which makes it scalable. This is because 95% of the user acquisition and loan underwriting is automated. over 10 software developers are behind this technology, so that users can work on mobile and web interfaces. Marketing for the services from L-Pesa is done through social media networks and SMS based marketing.
Information is safely built on Amazon Web Services, which is used by some of the world’s most powerful brands including Netflix, Airbnb, Pinterest and Spotify. Using third party applications, L-Pesa is also able to amplify its services including marketing, user verification and SMS messaging. Mobile service providers have also been integrated to facilitate smooth fund transfers. These providers include M-Pesa, MTN, Airtel and Tigo Pesa.
Well, the reason is simple – and it is success. It is now 5 years since L-Pesa was founded and launched and it has grown in leaps and bounds. Now, L-Pesa is almost fully automated in its operations. The loss ratio is less than 10% and the returns on loans is close to 25%. Now L-Pesa is looking at expansion of its services. Currently, the services are available in Kenya, Tanzania and Uganda with a launch planned in India in 2019. After the roll out in India, more countries in Asia, Africa and Latin America will be launched.
With great success, comes challenges as well with competition. The main competitor is the well-funded Silicon Valley fintech start-up that is called Branch. To date, it has managed to raise in excess of $80 million of venture capital. The model it uses is like L-Pesa, and Branch is already active in many markets including India. There are other competitors such as Tala, which is also available on mobile, and Grameen which is a famous microfinance institution.
Since March 2015, there are over 70,000 of loans that have been issued by L-Pesa. More than 300,000 users are now registered to L-Pesa. The marketing of this project has been low in cost and focused on social media networks and SMS. This has resulted in a higher effective rate. L-Pesa continues to change the world of progressive finance and grow from strength to strength. Once launched in India and in other countries around the world, the sky is the limit.