Whether you serve businesses or individuals, running a lending company will always be a risky terrain to operate in.
Why? Itโs hard to determine whether borrowers can pay youโor will ever pay you back. And itโs hard-to-operate terrains like these that develop innovative solutions to solve market-specific problems they have.
Weโve seen it in bank statement verification and alternative data assessments, and asset-based financing for individuals. But what about invoice-backed loans for SMEs?
Zuvy, a Nigerian fintech which was acquired by BAS Group, provided SMEs with invoice-backed loans. Like every other micro-lender, it struggled to issue loans directly. Itโs the same case: borrowers want quick cash yet lack eligibility, and as a result, the startup struggled to grow its loan book.
Without increasing your loan book size as a micro-lender, you struggle to make money on premiums and interest. And guess what? The timeline for the debt funding you raisedโwhich is preferable for businesses like these with capital-heavy operations as opposed to tech and assetsโis expiring.
So, Zuvy pivoted to invoice-backed loans, which meant it excluded a huge chunk of businesses and targeted a specific groupโvendors who sold to manufacturers. If you run a chicken poultry farm and supply to Chicken Republic? Check. โ
Put your money credibility where your mouth is and get a loan.
Itโs similar to Rivy (formerly Payhippo), another Nigerian SME lender which shifted from direct lending to solar financing. What can SME direct lenders fundamentally fix about staying long-term in the market? Are niche-specific loans a better way to go, provided you keep recovery optimal?
Well, this leaves one niggly problem: who takes care of the groups that have been excluded from these pivots? Zuvyโs acquirer, BAS Group, says it wants to do so.
Read how the acquisition of Zuvy, which has disbursed โbillions in loans,โ went down.
