Ben Lyon
CEO – CreditSMS.
Aaron Ewedafe wakes up every morning at least one hour before the sun rises. Donning his satchel full of client records and repayment schedules, he hails the nearest okada driver and races into the surrounding countryside to begin a long day of loan group meetings. The trip from headquarters in Oshogbo to the village of Ojudo and back can take all day. Aaron rarely makes it home before nightfall. Altogether, Aaron spends 112 hours and 5,000 naira a week to manage 350 microloan recipients. His profit is negligible.
Although Aaron is fictional, his story is not: representatives of microfinance institutions (MFIs) spend countless hours and energies to reach loan recipients to collect their repayments. In the process, they lose valuable time and money, constraining their potential for portfolio growth and forcing them to pass costs on to clients in the form of interest. In 2006 CGAP estimated the average interest rate charged by MFIs to be 28%, with standard rates varying from 25% to 100%.
Transportation costs constitute the single greatest contributor to high interest. Where potential clients are scattered and infrastructure is weak, the costs of issuing credit are either exorbitant or prohibitive. But what if loan officers could cut transportation costs in half? What if they could simply receive scheduled loan repayments via text message?
They can with CreditSMS.
CreditSMS was developed to create a standard and accessible platform for MFIs to integrate mobile money and airtime transfer systems into their business models. By converging text message management software and local money and airtime transfer systems like M-PESA, Mobile Money, or Me2U, CreditSMS allows loan officers to distribute and manage credit over broad areas from their computer.
The benefits of integrating CreditSMS into the MFI business model are twofold. First, loan officers like Aaron will save hundreds of hours a year in travel time, allowing them to focus their energies on building and managing a larger client portfolio. In turn, MFIs will earn higher net revenues. Second, MFIs will be able to lower interest rates commensurate with saved transportation costs. Lower interest rates will reduce barriers to entry and thus encourage higher participation from bottom of the pyramid (BOP) entrepreneurs. More simply, CreditSMS enables MFIs to pull higher revenue while simultaneously pushing down the cost of credit.
To learn more about CreditSMS and our upcoming pilot programs across Africa, please visit our website (www.creditsms.org) or contact our office at info@creditsms.org. We are happy to accommodate international callers and are available via Skype (username: CreditSMS).
