It’s no secret that small businesses in Nigeria dread to approach traditional commercial banks for loans because of the stringent conditions often attached to them, the main none being collateral. And that is where Ercin Eksin and Tunde Kehinde both come in with their new initiative, Lidya Bank.
From their tiny office space, they run the digital only bank that has enormous impact on small businesses not just in Nigeria but in Africa as whole
“The basic idea is we want any entrepreneur across Africa to be able to get finance to grow his or her business. So what we want is as long as you can show that you have a solid business, you are growing, you are looking for capital for inventory of working capital, we will help you to get that and also we are going to help you to do the credit score so that when you deal with your other partners locally or potentially internationally, you can also get other trade terms or financing terms to help you grow your business.” Tunde Kehinde, Co-founder, Lidya Bank:
“What we believe is that the traditional way of giving loan is not the only solution in the market especially when you want to serve SME, you have to take a different approach. At the end we didn’t invent electricity by optimizing candles so how we look at it in this case is we look at the market. We have been operating in the market. We look at how can you verify the businesses without requiring collateral” said Erchin Eksin, Co-founder,Lidya Bank:
Lydia is leveraging on the spread of digital technology and increased internet penetration in Nigeria to help SMEs overcome the challenge of access to credit.
“The new collateral in this age is data. So what we are doing is that we are working with SMEs so that we can understand more about their businesses, whether it’s their level of turnover or cashflow and use all those different data point to help them access financing. And if you think about what is going to help us get out of this tough time in Nigeria, it’s going to be empowering small businesses that can create jobs, diversify our economy and without access to finance, these young men and women can’t do that.” Said Tunde Kehinde:
“What digital allows you is that wherever you are in the country, if you have access to data, Internet, a smartphone, you can basically do all the functions that you need. You can apply on line and get your financing online as well.” Said Erchin Eksin
Loans are given based on the credit rating of a potential client, and the ability to repay on time increases chances of getting further bigger loans
“The credit rating is quite a new concept in Nigeria and in Africa in general. So therefore what we are doing is that we are also educating the system, like eco system about what their invoice is, what their credit rating is, what it means to have a good credit rating, what it means to have a bad credit rating. We are also making clear for them and encourage them to be good actors so they can get cheaper and larger source of capital.” Said Erchin Eksin
Lydia is not really a bank in the actual sense but a financial platform that works with banks to help give loans out to SMEs.
“Basically how our system works is, when you join Lydia today, what we ask is some basic information about yourself, your business, the best way to contact you and then from day one you can start invoicing your customers and tracking your business. So how are my receivables doing? Are people paying me on time?How am I tracking my revenue? What are my top ten customers? And based on that data, we can now begin to say look, Ercing .com, here is the level of revenue in your business. You qualify for this much of facility. And we can now show our partners to make you an offer for a facility. If you accept, in as little as three days, you can get an agreement for loan disbursed to you by our partners and then from there we now begin to build your credit.” Said Tunde
Around 6,000 merchants have signed up to Lidya and the startup has supported about 100 small businesses in securing financing. Erching and Kehinde say their plan is to cover the whole of Nigeria in the next one year before stepping out to cover the continent.