Letshego seeks to tap into Airtel’s micro network to expand loan book

Letshego and Airtel Mobile Commerce have built a mobile-based loan product, which the micro lender said last week will be key in expanding its loan book.

The product largely target low end users and seeks to address short-term financial needs of both individuals and businesses.

The Uganda Microfinance Regulatory Authority acknowledges that innovative products that are tailored towards reaching the underserved population have been growing in the last five years.

Mr Giles Aijukwe, the Letshego chief executive officer, said telecoms such as Airtel have a reach of about 13 million Ugandans, many of whom are in hard-to-reach areas.

Therefore, he noted, the lender will leverage this reach to access borrowers, whose only collateral will be their credit history, which will be assessed to ascertain their credit worthiness.

In January, Airtel signed a partnership with GnuGrid, a credit scoring company with the view of assessing customers with active mobile money accounts.

The company scores customers based on transaction history, which includes repayment and savings history, thus reducing the risk of loan default and multiple loan applications.

Bank of Uganda projections indicate increased risk of loan default on household loans, which include micro credit borrowers that could increase to 26.2 percent on a net basis, compared to 11.6 percent.

Mr Japheth Aritho, the Airtel Mobile Commerce managing director, said at the launch the mobile-based loan product had been developed with a high rate of credit score that will significantly change the way credit is given.

The mobile-based loan product, which is exclusively available to Airtel Money users, will enable customers borrow as low as Shs20,000 up to Shs700,000, repayable within 30 days in a lumpsum.

Mobile money has become a key measure of access to credit in Uganda, placing the country among countries with the easiest access to credit. 

The Africa Trade Barometer report by Standard Bank, which measures economic parameters including access to credit, among others, last year noted that due to the growing influence of mobile money, more Ugandans are now accessing credit compared to other countries. 

The report notes that at least 49 percent of surveyed businesses believe it is now easier to access credit, which is an improvement from 38 percent. 

Uganda is only next to South Africa, which the survey shows that 50 percent of surveyed businesses believe it is easier to access credit, which was an improvement from 34 percent. 

Ministry of Finance data indicates that on average, at least Shs31.4b worth of loans is dispensed through mobile money per month in Uganda.

The microfinance company, Letshego which provides SME loans, mortgage loans, and education loans has of late been extending loans on a slow pace, this looks to be an opportunity for the company which is trying to get its footing in the lending business where banks are dominating.

The financier has been leveraging on a Shs18.98 billion loan from its parent company to remain afloat especially last year when it extended too many loans that weren't being paid back on time.

This even brought it a squabble with its parent company’s lenders since it broke one of the covenants they had agreed when Letshego Uganda’s non-performing loans and 30-day past due loans went more than what was considered acceptable.

“The reason why we started with civil servants 19 years ago is because the commercial banks could not find a suitable products for a teacher who was earning as low as a hundred thousand shillings but this gave us an opportunity to learn that there is nobody who doesn’t have a financial need so you just have to design a suitable product for them, ‘’ Aijukwe emphasized,he said this nothing the potential this partnership has to upscale it's lending business .