Rajat Dayal is the Founder and Chief Executive Officer (CEO) of Yabx, a fintech start-up in the digital micro-lending space. It has been incubated by Comviva, a global leader in mobile financial services and part of the $21 billion Mahindra Group.
Yabx’s vision is to simplify financial access to the over two billion unbanked populations in the emerging markets of Africa, Asia and Latin America. This is to be actualized via the mobile device, by leveraging an individual’s digital footprints.
Yabx has recently forayed into Malawi, Rwanda, Bangladesh and Colombia, whilst launching its operations in Tanzania and Uganda as well.
The start-up enables banks and financial institutions to create and manage digital products such as microloans, savings, overdrafts, loans for small and medium-sized enterprises (SME), etc., tailored to the needs of the underserved segment.
It offers microloans, ranging from $15 to $300 for payment of utility bills, school fees, smartphone finance, SME credit etc., These loans are extended based on individual credit scores, which is determined by leveraging advanced analytics using data points generated from an individual’s mobile usage such as GSM, mobile money, call data records (CDR) and social data.
Led by a team of industry experts and entrepreneurs, Yabx currently operates out of Cape Town, Nairobi, The Hague and New Delhi.
The start-up has partnered with leading mobile operators in Africa, Latin America and South East Asia and is also executing proofs-of-concept (PoCs) in several countries. Yabx expects to go live with 14 projects across 10 countries by end-2020.
Having proven the viability of the model in developing nations, Yabx is now focusing on scaling its business and expanding into new countries in Africa.
The Founder and CEO, Rajat Dayal, in this interview with Peter Oluka, Editor, TechEconomy.ng, speaks on Yabx’s future plans for Africa and sundry issues. Excerpts:
Q: Briefly tell us how Yabx idea was conceived and incubated by Comviva
Rajat: To say that the digital payments space is witnessing explosive growth would be a bit of an understatement. With the aim of leveraging the available transaction data, we attempted to back-test the performance of our model with a bank’s existing loan portfolio. We were, in fact, pleasantly surprised to register that the model was performing at par with what was witnessed by the bank whilst utilizing bureau data.
Further, enhancing their digital presence was a priority for the majority of banks and financial services institutions we were in talks with. Largely, these players were losing ground to more innovative and nimble-footed fintechs. We were, therefore, approached by these entities, particularly keeping in mind our value proposition of end-to-end management of the client’s digital portfolio…
Our mission and vision (not just in Africa, but globally as well), is enabling banks and microfinance institutions (MFIs) to create a profitable, unsecured portfolio in markets where credit bureau coverage is limited. Our focus is on “innovating” to ensure end-to-end management of the workflow pertaining to small ticket loans. .
So far, we have built up a fairly extensive global footprint, spanning Asia, Africa and South America. A key learning that has emerged during this time is that East Africa appears to be a more congenial setting for our business. This is, of course, largely attributed to the more flexible regulations that permit banks to participate in the process of creating innovative products supporting financial inclusion.
Q: Most of your customers may not have secured credit before, how do you manage this?
Rajat: In a nutshell, we invest in new to credit segments; customers who have no prior experience with obtaining credit. The customer journey begins with introducing the customer to the finer nuances of the products on offer, the pricing, the terms and conditions; the importance of adhering to timelines pertaining to repayment and the repercussions of late repayment, etc. Permit me to cite an interesting example in this context. In Africa, it is noteworthy to mention that customers tend to ignore the fine print, as they are more preoccupied with obtaining the loan. To avoid the confusion that invariably ensues later, we ensure that the customer is aware of the whole concept right at the start.
Meanwhile, conversely, in the US, access to credit is not only simple but has played a significant role in fostering entrepreneurship and innovation.
The idea, therefore, is to work with our partner banks to provide financial access to small and medium sized businesses on a mission but with limited funds. Whilst, obviously, ensuring that the money is available to be recirculated to other individuals and businesses with similar ambitions. Simply put-the funds ought to be available to the right individual for appropriate purposes. After all, the loanee will be able to repay the loan only if they are able to generate additional income!
On this note, I would like to mention that we are executing multiple promising projects in Africa , with the bottom-line to ensure we account for a lion’s share of the $4 billion of micro-credit going through the East Africa deployment.
Q: Most of your target markets are dependent on USSD (a 2G technology) to access the credit. How are you deploying services to these people who also majorly dwell in the rural areas? The keyword here is: How will your services drive financial inclusion?
Rajat: The smartphone penetration in Africa is anywhere between 30 to 35 per cent, depending on certain geographies. Owing to the lack of smartphones, 90 per cent of the origination and fulfilment of our loans in Africa is executed through the unstructured supplementary service data (USSD) channel. This is how we begin our journey with the customer and, gradually upgrade them to smartphone users. Thereafter, offering a more engaging experience is simple. In fact, We are also empowering customers in one of the countries under discussion. We have introduced a handset financing project, in partnership with telecom operators and a banking partner. The idea is to provide affordable loans to customers to purchase smartphones. They can pay back the loan within six-months with monthly instalments And it doesn’t end there-this can be expanded to offering financing for white goods in Africa as well.
Q: Do you offer these loans in local currencies? When there is a default on the part of the lonee, what happens?
Rajat: We prefer to work with local lenders and local banks. Conversion of the dollar into local currency isn’t a challenge, as collections take place in the local currency itself.
Q: What has been the feedback from these partner-banks, or local lenders? Do you have records of defaults or people pay when they’re supposed to pay?
Rajat: The value we bring to the table primarily centres on selecting an appropriate set of customers for the banks we partner with. We assist our partner banks in creating a long term strategy for these newly acquired customers. We move promising customers higher in the value chain and offer them higher limits and easier terms pertaining to repayment. We have registered healthy delinquency numbers and have been able to maintain a profitable portfolio, which is extremely difficult in Africa. The banks we work with are extremely happy with our performance thus far.
Q: Okay, can you share with us the experience during the COVID-19 pandemic? At what rate were people requesting for these loans?
Rajat: This is a very important question. We conducted a study across our deployments with respect to COVID-19, which unearthed two key findings. While overall spending has declined, digital merchant payments have registered a 20-30 per cent increase. Of course, there are certain categories of merchants who haven’t been impacted and certain portfolios and categories that have grown in terms of the business.
One such example is healthcare, with drug stores registering a 10-15 per cent spike in their business. Here’s how despite customers not consuming medicines, they are thinking ahead and preparing for any eventuality. Similarly, groceries and essentials as a category has registered an increase of 30-40 per cent.
Also, electronic devices and smartphones, both in terms of usage and demand, have increased sharply, as customers are still required to access information in restrictive conditions. In terms of the default rates, no significant movement, either upward or downward, has been witnessed, at least in Africa which is, in fact, a matter of pride for us. It shows that we have been able to support the appropriate set of customers and businesses so they are able to use those loans to obviously generate positive cash flows.
Q: Let’s come closer to Nigeria. When are you launching in Nigeria? Or what are the issues you would expect the regulator – CBN – to address?
Rajat: Yes, we expect to foray into Nigeria soon and are currently studying the market closely. There are, naturally, a few things we’d have to be prepared for. For instance, the prevalence of a payment ecosystem.
Unfortunately, in Nigeria, the penetration of wallets is quite low, as opposed to East African countries-the larger ones each have 20-30 million mobile money customers!
Traditionally Nigeria has followed a bank led model; where banks are doing the lending themselves. However recently; there have been developments in the Mobile money space. The easing of regulations; entry of major telecoms offers a hope to shake up the industry and drive financial inclusion.
In sum; when the ecosystem is conducive to Digital lending; we will collaborate with partners (telcos & customer networks) to launch operations in Nigeria.
Q: What was the experience like during the incubation period at Comviva?
Rajat: Yabx was launched in 2018. I was given the freedom to assemble a team with prior experience in banking, telecom and consumer marketing. The idea was to collaborate to change the world. The business proposition wasn’t an easy one, so, naturally, only the best in the business would suffice. As we set out, extensive research was conducted on the regulations pertaining to banking and data sharing in the various markets we wanted to operate in . The process entailed examining existing offerings, conducting interviews with customers to understand what ails them and consulting with experts and firms to understand the lay of the land.
Our key differentiator is the ability to leverage alternate sources of data, for instance, telecom data, to under-write prospective customers. Our data science team worked with industry experts and faculty to study behavioral traits, in order to create features from these unconventional data sources.
It was (and remains) a fun task and I am proud of how far we have come.
Q: In summary, where have you deployed your services and the new frontiers you intend to launch too?
Rajat: We have deployed in five countries. In the next three months, we will be active in three more countries. By end-2020, our ambition is to go “live” in 13 countries.
Q: So, what is your plan for Africa in 2020 and beyond?
Rajat: On an annual basis, about $4 billion of capital is deployed in Africa just for microcredit, which is quite significant.These are all small ticket loans, ranging between, approximately $10, to $1,000, depending on the customer’s risk profile. .
Our plan for Africa is both vertical and horizontal. We aim at expanding horizontally to a few more countries. West Africa is definitely a part of our strategy. As mentioned before, though, we’re working with the regulator to ensure that the pricing and the product can be constructed fairly for customers and banks alike. We will thus be launching in two West African markets by the end of the year. Regarding the countries, we are already present in., our focus would be to grow those portfolios, by 15-20 per cent. The idea is to fulfil the aspirations of the partner banks in terms of growth.
Peter: Thank you, Rajat for sharing the interesting story of Yabx’s journey.
Rajat: Thank you so much to TechEconomy.ng for this great opportunity. We look forward to launching in the Nigerian market and shall keep you posted, needless to say!