Building the scaffolding for a Nigerian credit boom, with Adedeji Olowe
Nigeria is Africa's biggest economy. Or maybe not quite, economic variables can be hard to measure and somewhat fickle, but whatever way you slice this cake, it is in the top three with Egypt and South Africa. Fintech has played a growing role in that economy, but until now, almost none of the 'fin' that the 'tech' has been modernising was lending-related.
"I knew that if Nigeria was going to grow and the middle class was going to emerge, there has to be a credit culture, right? And I knew that one person wouldn't be able to do it... I want to be that platform that makes the creation and discovery of credit significantly easy, cheap and very secure."
Adedeji is a Top Leadership Voice on LinkedIn, follow him there for his regular insights at https://www.linkedin.com/in/adedejiolowe/ Check out his work at Lendsqr (https://www.linkedin.com/company/lendsqr/) and Open Banking Nigeria (https://www.linkedin.com/company/openbankingnigeria/) while you're there
But Lendsqr's real home on the internet is https://lendsqr.com/ - go see how they've 'cracked the lending code'
LinkedIn is also where you’ll find me (https://www.linkedin.com/in/brendanlegrange/) and this show (https://www.linkedin.com/company/how-to-lend-money-to-strangers/) - so pop over and send me a connection request
My action-adventure novels are on Amazon, some versions even for free, and my work with ConfirmU and our gamified psychometric scores is at https://confirmu.com/ and on episode 24 of this very show https://www.howtolendmoneytostrangers.show/episodes/episode-24
If you have any feedback or questions, or if you would like to participate in the show, please feel free to reach out to me via the contact page on this site.
Keep well, Brendan
The full written transcript, with timestamps, is below:
Adedeji Olowe 0:00
I think the best metaphor will be the Wild Wild West. It is a place of immense potential. Do you have what it takes to overcome this, then you're going to have access to every good thing. If you don't, you're going to be decimated.
Why is that you don't have lended that just go in there and just start giving loans to everybody? I think the first thing you notice about Africa, and Nigeria in particular, is the lack of consequence.
Brendan Le Grange 0:22
In the days of the American frontier, even the later days, the economy of the wild, wild west was still developing and defined by resource extraction. Now, it's a centre of global tech innovation.
Oh, to have had an ancestor that bought a little plot of land at the Bay Area back in those days... perhaps you can be that astute ancestor for someone else, because you're late, but not too late to jump on the Nigeria bandwagon: home to 200 million people and, less and less every day, but an economy that can be described as still developing, defined by resource extraction, and more than a little like the wild wild west.
Welcome to How to Lend Money to Strangers with Brendan le Grange.
Adedeji Olowe, founder and CEO at Lendsqr and trustee at Open Banking Nigeria, welcome to the show.
Adedeji Olowe 1:30
Thanks so much, Brendan.
Brendan Le Grange 1:32
Adedeji, you walked the path from electrical engineering to traditional banking to FinTech to founding your own venture to venture capital. So, if we talk about your experience, there really is a lot to summarise, but let's try and do that first, before we get into the real discussion.
Adedeji Olowe 1:48
Well, quite interesting. I never really planned to be in finance. When I finished university being electrical engineering, it just happened that banking was really looking for very bright young people, engineers, science, even veterinary doctors were all coming to banking.
And I'm glad that I worked in banking for 16 years, I spent most of my time in finance, then moving to payments. And I was in payment for quite a while, of course, obviously, I did tonnes of technology, even across technology and finance and technology and payments.
And then after that I was a VC for five years before deciding to relaunch unskilled lens work. At one time, I've tried to do left square, I was really bad inside. And by the time there was an established product market fit, right, I decided to just do it. And you know, startup is one is crazy. And well, I'm happy that I didn't know how difficult to be.
Brendan Le Grange 2:44
Before we talk about laying screen what it's doing. Would you mindeducating me a little bit on the market context in Nigeria? And maybe since you've been at the forefront of FinTech as well, how have FinTech players shaped what that industry looks like today.
Adedeji Olowe 2:58
Okay, thank you so much.
Right, so if you look at Nigeria from outside, and I think the best metaphor will be the Wild Wild West. It is a place of immense potential, right? But also a place where you have rattlesnakes, scorpions, very harsh weather! Now it is more like you have what it takes to overcome this, then you're going to have access to every good thing. If you don't, you're going to be decimated.
So Nigeria is 20 million people and significant potential right. When we talk about payments right - before going to credit - first Nigeria discovered and grew telecoms. Twenty-two years ago, when MTN came to Nigeria and MTN was like maybe second in South Africa, Vodacom was very big and Vodacom used to bully MTN, and then MTN went up north. MTN didn't bring capital, they actually raised the capital they used to buy the licence from Nigeria and today, MTN Nigeria represents 60% of the MTN group. MTN went through hell to get there, right, but the pay off is nice.
Now, it is the same thing for payments. Payments grew massively. Every Nigerian is used to transfering money quickly, money getting there in seconds is natural. In fact, it was so successful that the by the time mobile money was coming to Nigeria, mobile money failed - and it failed because the problem mobile money was going to solve, which is transferring money easily, was already solved by faster payment and interbank transfer.
Now, unfortunately, credit never got the memo. So you're looking at a very large country that has potential for probably over $100 billion worth of consumer and SME credit per year - if anybody cracks that that person is going to make so much money and add so much value that it will make MTN and all the payment providers that we've been celebrating so far look like kids!
Because credit almost has in finite need. You need credit for every facet of your life. including buying the phone as well. So that's a potential, right?
But what I haven't told you are the pitfalls, and the pitfalls are many.
Nigeria Consumer Credit space is very crazy. It's just like Kenya as well, it's so crazy that the government has to use Google to crack down on a number of spurious and very badly behaved lenders. And those are how everybody thinks about lending in Nigeria, right? So yes, the potentials are there. And the problems are not trivial at all. So I will say anyone who's got what it takes to solve that problem will reap significant potential.
Brendan Le Grange 5:42
We've seen Nigerians leading businesses built out of Silicon Valley built out of land and built the traditional hubs of fintech. But now, and this is sort of just anecdotal off of LinkedIn, I'm seeing more and more Nigerian businesses been built in Nigeria, is there now a fully fledged FinTech or startup hub, in Lagos or in Nigeria?
Adedeji Olowe 6:02
So actually, really notable danger company being built outside of Nigeria? That is mostly for optics, here the thing, right, you're a Nigerian company, you started in Nigeria, you operate in Nigeria, you need to raise funds. So you set up a Delaware company and then you are suddenly a Nigerian company operating out of Delaware. They are Nigerian companies, and they are being built in Nigeria. But from a financial and jurisdictional point of view, you could say, oh, we have an office in the UK, we have an office in the US.
Brendan, they are all Nigerian companies, they are built and serviced by Nigerians, and they're serving Nigerians as well.
And I think one of the things that made that easy is because the internet, especially faster internet kind of created a situation that allows those innovations to come around. And you could say, as you solve the problem in Nigeria, the same solution could be applied in South Africa, or vice versa. And then you could also say you're a Nigerian company operating out of London as well, nobody cares. Because that barrier, the friction is being removed by the Internet, or let me use this will buy faster and more accessible and cost effective incident
Brendan Le Grange 7:12
We're here to talk about Lendsqr that, you know, the real topic. But I want to do one last little bit of context, before we get there a little bit of education for me, you are also involved in open banking in Nigeria. And would you mind just talking to me about open banking in Nigeria, what is the status?
Adedeji Olowe 7:29
The British led this, and they are globally known to be the lender so far, even though Brazil is coming right at the yields in terms of scale of adoption, and the elegance of the solution. But then, you know, the bridge is created open banking to solve a competition problem.
And then we saw that same solution and felt Ok, you know what, we don't have a competition problem but the same solution, right, could actually solve an innovation problem for us in Nigeria.
Were every single bank were speaking the same language could remove significant friction from our fintechs, and other integrators going into the bank.
So say open banking, and we say working with Central Bank, alien and other banks. And then we were able to bring in all the top names to general banking, all the before PwC, EY, KPMG, they have very strong demand for pool banking, all the top fintechs floater, we pay stack, money point, all of them are part of open banking, as well alongside tonnes and tonnes of individual contributors.
So we work with government to bring out the first regulation on open banking, that basically said, every bank is required to do open banking. And that came out in February 2021. A subsequent day, we had worked together with government. And then we came out with the one that came out in May this year that says, This is how you're going to work. These are the guidelines. So there is an ongoing implementation conversations all over the place.
And when we talk about this phase, basically, we are defining how the system will actually talk at the nuts and bolts level. And want to make sure that everybody coming to the table is doing the right thing in the right way as prescribed by law. So that's where we are right now. I will say that we should be looking at about maybe early next year to go live. This thing should we shall go live in probably nitrogen it in but you know, we just have to be happy with what we have for for now.
Brendan Le Grange 9:22
And potentially you when when you move to to start the business, you were already very successful and very busy your committee tasks that you were doing at the time, many roles you were fulfilling. So you certainly didn't need to take on a new challenge or starting a whole new business.
So what was the gap or the inspiration that you saw in the market that tempted you to to go on and do that?
Adedeji Olowe 9:44
Okay, so I knew that if Nigeria was going to grow and the middle class was going to emerge, there has to be a credit culture, right?
And I knew that one person wouldn't be able to do it. One lender wouldn't be able to do it. Because when you look at Nigeria and look at why credit doesn't work, you need to understand that is a lack of consequences that killed credit.
So yes, sometimes it's good that you want to use data to make a decision, but that becomes useless when you find out that there are no consequences for bad behaviour. And what you found out that that is directly correlated to break down in the state - when governments are not responsible, then people behave or do whatever they want.
So in Nigeria today, if you took money, and you don't pay it back afterwards, nothing happens to you. And if you want to go to the call to law, or you want to use the proper process to go to this, sometimes the cost of that significantly outweighs the loan that being given, so you let it go, just decide next time to say that last borrower, I'm not going to give them money.
Now, one of the things that Lendsqr is doing is that, by having a technology driven consequences, then that problem is going to go away. Because if Brendan were to be a lender, and I borrow money for him, and I didn't pay, if I shouldn't have with other lenders, again, I'm never going to get the credit.
Quickly, it becomes known that, oh, if you took money, and don't pay back, you're probably not going to get any new anywhere.
That's a consequence, not enough don't want to do to take you to court, you just will push yourself out.
Now, once you remove the problem of willingness to pay out of this is easy to use algorithm to figure out capacity to pay things like Do you have a job, I'm going to get on how much do you get paid at the end of every month or every week? How much you spend in servicing under lose how much you spend on living. And that is where open banking is going to work. Because open banking will make access to data in metadata consented by the customer and extremely elegant, safe, secure with privacy is going to transform credit entirely.
Brendan Le Grange 11:50
Yeah, these moves to weed out that bad lending then and make it a smoother system to run. You're also adding more efficiencies in a system point of view as well. So it's double efficiencies, or efficiencies and effectiveness, but adding those savings to the system. Yeah, it benefits the lenders, of course, but it also benefits the good consumers are paying who can build that reputation, maybe that one small loan first, which they pay down, and it could be a better loan at better rates. And very quickly, they've established a set of patterns that are proving themselves to be reliable.
Adedeji Olowe 12:22
So I knew that if we build a system that is able to make that happen, kind of bad, the bad borrowers and accentuate the chance of good borrowers be able to get money, that that will change significantly. And we also knew that the technology to run your own business as a lender is available. Yeah, fine.
And they work well. But they're just so expensive. They're only available for the biggest lenders and the biggest banks. Yeah, what if we made this thing entirely possible? Bring it to everybody. And that foundational kind of thinking is one of the things I will say I'm lucky to have. So let me give a good example, both of us, we're doing podcasts right now, you are like a minimise away from me we've never met before, right.
But the faster internet media, although since possible, without good internet, literally, all the popular podcasts we know of all the online streaming is all the different styles that were discovered easily without having to go through the traditional means wouldn't have happened. I want to be the internet of credit. That's what we're building. Right?
I want to be that platform that makes creation and discovery of credit to be significantly easy.
Brendan Le Grange 13:34
Let's get into some of those nuts and bolts. What does that mean? What is the product, basically?
Adedeji Olowe 13:39
Everything you need to lend, technically and data, we will provide for you. All you need to do is bring your operations, your capital and your brand. That's all.
In simple terms, with some cal us the "Shopify for lenders".
Lending is a very complicated business. It's not like other businesses like E commerce where you have stores SK use, then you sell, and then you undo delivery and you're done. lending is a very involved process.
And it's like pregnancy, it has terms.
So right from discovery or origination, right? People need technology to be able to organise easily, cheaply cost effectively. And then you've got to make a decision. I haven't seen Brenda before. Why should I give monitoring? What actions I have is going to pay back. And those assurance are not based on yes or no. Sometimes they're based on dealing with tonnes and tonnes of type of data, some structure orders or structure to make decisions quickly. And then you need to do approval and get it this boss. Does it go to him? Does it go to his bank account? Does it go to a third party where Brendan doesn't have access to credit? Right, but he's responsible.
Then after that you looking at reporting you want to sit on your dashboard and just know where the shape of your lending is going isn't going towards the Titanic, as was your story? Feeling of selling to a safe apple? Right? And then you can pause. Correct. As this thing start continuing. And then after that you want to do payments, right? You want to rebuild paid? Do you wait for customer to pay you? Or does the system allows you to do your debit or credit card to pull money to pay us? Or when do you? Do you provide maybe virtual accounts where you could send money over the wire? Just that question to ask, and those are things we provide.
And the lastly, you want to do recovery. Because no matter how good your portfolio is, there's going to be a cop that probably will not be on time, you want to have a system in place that can ethically and with empathy, sometimes follow down and get your money back.
That is what we provide for lenders, right? Because literally, those are the things you grapple with. And the idea will be if we take away this pain from you, how will you lend very, very well.
Brendan Le Grange 15:53
If we think about that origination spot, and particularly the kind of credit evaluation, the credit scoring part, what sort of data is available for you to bring in or for lenders to use when they're evaluating a loan, what we're looking at in terms of open banking, perhaps coming in in the future, but in terms of credit bureaus in terms of coverage of data, alternative data that may be popular in the industry.
Adedeji Olowe 16:15
So you know, traditionally, in more developed countries, you need a credit history for you to be able to get loans. But before you get into the history, you need to make your first loan, right - which becomes a chicken and egg problem.
And when you look at the Nigerian space is almost impossible. Most people that come from loans, maybe about 10 to 20%, we actually have access to an issue, most don't. So what we've done is, first and foremost, we've created this decision, algorithm and ecosystem that is very cost effective very fast.
And then straight to the point, because getting data to make a decision is expensive, like going to credible, we built it on a pipeline, by checking through first our blacklist, then it goes through like what we call a, a philosophy engine.
And then after that it goes into scoring, which is a traditional risk assessment approach that most risk managers do. And then we get to use the credible with customer, right.
So, in Nigeria today, the data you have to make a decision, right, where someone will pay you back on now is separating willingness from capacity. Yeah, so the first thing we do, we don't care about your capacity.
At first, we care about your willingness, willingness come in first from probably having a history of bad behaviours or habit patterns that synonymous with bad behaviour. So we have all those in our secret sauces, right? So when you first, take down those don't request, then you start dealing with things like capacity. Right? Remember, irrespective of capacity, someone who didn't want to pay back wouldn't pay back. So let's spend more time in willingness to pay back.
And to pay from what we found out in Nigerian users. When loans are due or past you, most often than not the no repayment or not servicing those loans and not due to capacity issues. They are usually due to this fair attitude. I just believe I can get away with this. Yeah, let me try my luck. Yeah. So we try and use data to do what kind of data do we use, your willingness to pay, we actually look at your past behaviour. If you have loans that you haven't paid, which goes into credit bureau, things like multiple profile log into the same app. Those are some of those red flags.
So to understand, before we then look at capacity, you couldn't be in $1,000 a month, and then you want $6,000 loan to pay back over six months, you know, we're going to get the money. We advise our lenders to use common sense debt to income ratio, the 5% being the guideline. And then that's it. That's how you do it.
Brendan Le Grange 19:00
Once you have a system like this available to the market, how is it changing the experience for borrowers as it makes it easier for them to gain access to credit?
Adedeji Olowe 19:11
Okay, so the students have been two folds. Unless we're in a we have about 3000 lenders. If you took money from one of them and went to another one, you will never get a loan again. That is frustrating for these bad guys, but it's extremely comforting for the lenders to determine that wow, you mean that equal to take money from me and now will probably have given in if not for the system?
Let us find that extremely innovative and at warming that I've got this thing watching out for me, something's got my back. For the lenders as well. They are able to create significant very complex rules that meet their individual needs. Without needing to have developers or very fancy the boys have to pay for them.
So they could write very complex rules about who could get there alone. And I'm going to want to offer so they have this in credible access to technology, the biggest lenders don't even have.
So when I was younger, like a younger professional, my CEO then, my Group CEO at UBA, we're going to create video conferencing and then they spent like a million dollars because they have to put boxes in every boardroom and they were in lighting, Africa countries. That was a big deal.
Now, we are having this podcast virtually never met you before we met online, we want to be the Google Meet of lending, make lending so ridiculously easy, cheap and very secure, that every single person can leave their job and become licenced to become a lender. Or they could do by the side as in basic encounters of money, because what will then happen is they are able to underwrite very secure loan, and then you can end a profit on it and profit or lose is very good.
Brendan Le Grange 20:52
I think the traditional model was that the prices will be high because of the risk. But actually, a lot of the costs were high, because the operations were expensive to run because the lack of systems the or the the expense of putting in systems at at smaller scales. And so actually, all those prices can drop, people get access to credit, and you're starting to build these reputations in your system. So the good borrowers filter through, they can get access to more and more competition better and better rates and offers.
So a win win for everyone involved.
Adedeji Olowe 21:22
So I feel like it's gonna take a little while. So we're talking about something called data supremacy. We're always there. Because we have tonnes and tonnes of customer right now we have loads of customer and also tonnes of lenders as well.
But he's going to get to the kind of inflection point when this thing becomes self serving, maybe more than one year to go, we may get there, I want us to get there on time. And we're working on doing everything to ensure that Thailand is able to learn a skill very well.
Brendan Le Grange 21:52
And you must be working on several things because I saw little hints hidden in your LinkedIn bio, which says they'd lend square is enabling smaller lenders to scale up guaranteeing Africans starting with Nigerians access to credit that would create a powerful long term growth for all. So that's starting with Nigerians gets me thinking, have you got some bigger plans? Are you ready to talk about what next four lanes way? Or is Nigeria, the focus for the moment?
Adedeji Olowe 22:20
So we run in a path focus on Nigeria, right, and we are already walking or partner with several players in different pockets of the world, Apple, say in Canada in the Caribbeans, and Kenya as well. And basically, we are having enlisted conversations where this kind of incredible technology can actually also get to walk in those places. Because the problem with serving Nigeria is almost similar to problems that lenders have in Kenya or in Canada.
If you are a lender in Canada, you are the good market. delinquency is going to be very small because your borrowers know the consequences of not being alone. But if you're a small engine, how do you compete with CIBC? TD? If you're in the UK to compete with Barclays? If you're in South Africa, do we compete with Standard Bank? Right or Harambee, once you have your capital, you need a technology that is significantly more powerful, more sophisticated than the best banks are at a cloud platform SAS pricing.
That's what we do.
Brendan Le Grange 23:23
And then ha It's been really interesting speaking to and I love sort of the the excitement and the size of the problem you're solving, I think some of the people listening will feel the same. So if they want to follow the story of liens, where they want to learn more about what you're doing, where's a good place online for them to go, you can
Adedeji Olowe 23:42
learn everything on our blog. And we not only do we talk about what we're doing, we also talked about best practices or thoughts around few things credit, right, so we write a lot. And that helps because we feel like many lenders or many people want to go into lending. Just want people who have significant insight into kind of problem the app, tell them about it. And also give them this kind of technology to do that, right.
And also we have gotten tonnes and tonnes of videos on our YouTube channel. And that describes how to do most things within n square. So people are kind of empowered because you know, enterprise SAS platform can be quite daunting to use sometimes. But we're there to help our customers in every possible way.
Brendan Le Grange 24:26
That's really good to hear it. I'll put the links to those in the show notes. And I'd also recommend everyone's follow you on LinkedIn as well. I think I first came across your profile on one of your blogs or one of your posts that Yeah, well worth the follow.
Adedji, thank you so much for your time, especially on a weekend. It's been great learning from you. It's a market I think that's really coming into its own exciting things to come out of Nigeria in the future.
So I think many people should take the time to go across to lane square.com see what you're doing seek out some of those blogs there. And LinkedIn posts and really see what's going to come out of it now Africa's biggest economy
Adedeji Olowe 25:05
Pretty close, I am looking forward to us getting out of the woods, because that's affecting business for lenders as well. Because as the economy goes south NPLs or in our customers was enabled inability to pay back is increasing at a faster clip, which has to be reset. Because when people think people will not pay back then you see lenders pulling back and then the exactingly running away from actually happen.
But yes, like you mentioned, yes, we met on LinkedIn. LinkedIn is a great place to meet great people, and I'm really grateful to be invited to your podcast. I look forward to coming back again to speak on other things, but as far as credit is concerned, I'm all in
Brendan Le Grange 25:48
Yes, I will definitely have you back in the future and be keeping an eye on what you're doing with Lane square and let everybody no as things develop.
And thank you all for listening.
Please do look for and follow the show on your favourite podcast platform and share the updates widely on LinkedIn where lending nerds are found in our largest concentration. Plus, send me a connection request while you're there.
This show is written and recorded by myself Brendan le Grange in Brighton, England and edited by Fina Charleson of FC Productions.
Show music is by Iam_wake, and you can find show notes and written transcripts at www.HowtoLendMoneytoStrangers.show and I'll see you again next Thursday.