“The main local tradition is to deceive the white man”

Co-founder of Afrikaloan.com and Prestalatino.com Mikhail Lyapin — how to issue online loans in Africa and Latin America.

Mikhail talks about life and business in Africa in his telegram channel @mzungugram.

In Russia

I was born in the largest city beyond the Arctic Circle — Murmansk. Lived in St. Petersburg and then in Moscow for the last eight years. He worked in IT, was engaged in the sale of data center services. Then there was the "hype theme" — cloud computing. It seemed to bring in a lot of money. Two years ago, I worked as an operations director in a company that assessed credit borrowers for banks — also a cloud service.

Lenders sent us applications, and we said whether they should issue this loan or not. I quickly realized that if we successfully determine which borrower is good, then we just have to find some money and we can issue loans ourselves.

That's how I met my partner Sasha Titovsky, who at that time had been giving out loans in Russia for nine years. He was oppressed by offline lending with constant problems: theft, regulation, staff turnover, problems with real estate and so on. I wanted to issue loans myself, and not offer cartridges to those who issue them. In the fall of 2015, over a glass of beer at the Hop Head bar, at Baumanskaya, we formulated an idea for the future of business: issuing online loans in developing countries.

In February 2017, I ended up in the capital of Kenya — the city of Nairobi. In Africa, I planned to live and work in the next year. In 2018, we began issuing loans in an area that is home to 440 million people. Let's add to them another 400 million people living in Latin America, where we started issuing loans in the spring of 2017.

Why not Russia

Now there are about four thousand non-bank credit organizations (MFIs, credit cooperatives and pawnshops) operating in Russia, and fifty of them issue loans online. It seems strange, but the relatively young Russian online lending market — one of the most competitive in the world.

In addition, there are many restrictions: on the interest rate, on the display of advertising, on the identification of borrowers, on debt collection methods and, of course, on the topic of the “processing of personal data”, which has tired everyone. The Central Bank, in an adult way, limits the activities of such a business and makes more and more new requirements.

From the summer of 2017, MFIs in Russia must create reserves in the amount of 50% for debts with a delay of one day and 100% — on debts with overdue payments lasting more than 90 days. Because of all these events, the level of profit sags from year to year. My new partner Sasha told me that eight years ago he worked two hours a week, not bothering with details. And today "you have to run as fast as you can just to stay in the same place."

Developing in Russia is not particularly promising. Any of our innovations will not help us beat the leaders — in this sector, innovations are copied very quickly. Money conquers evil, just like everywhere else. Willingness to work where no one else wants to work will help. So we decided to go to countries that are at the level of development of Russia 15 or more years ago.

We have formulated market requirements:

• Many countries that speak the same language. Preferably in one region.
• Internet audience per country from three million people.
• Soft legal regime. Maximum interest rate, licensing, reporting and more.
• Low competition
• Availability of infrastructure for the transfer of money for issuance and return.
• Local currency stable against the dollar
• Private rights protection working.
• Select a location.

Our choice was on two continents: Sasha went to Latin America, and I went to Africa. In Latin America, Spanish is the official language in twenty countries, and in Africa, English — at twenty three. It's very convenient — you can make a call center for the entire region and cover all countries, having one headquarters. Within these regions, microfinance regulation appeared to be very similar. A higher loan rate than in Russia, and the low debt load of the population finally determined our choice in favor of these regions.

Business Environment Features

Taxes

The tax structure in Kenya is much simpler than in Russia. There are only a few basic taxes in Kenya:

• income tax — 30% for a resident company and 37.5% for a non-resident;
• VAT — 16%;
• excises (for excisable goods);
• Withholding Tax — from 5 to 25% tax withheld from certain types of income (dividends, commissions from insurance activities, royalties, etc.);
• income tax for individuals — from 10 to 30%, withheld at the place of receipt of the salary.
• There is no payroll tax. Payments to analogues of social insurance and pension funds are withheld from the salary of an employee — about ten dollars each.

Any business must obtain a business license once a year. The rates depend on the type of activity and the region in which the activity is planned.

The cost of such certificates and permits ranges from ten to several thousand dollars, like an alcohol importer's license, for example.

Hire

The labor market is interesting due to low staff salaries and high unemployment — 45% of the working population is unemployed. So the average salary of a call center employee — $160. Employees tend to manipulate the employer, threaten the court in case of unfair dismissal in their opinion, and so on.

This can be corrected, for example, by hiring employees for a personnel brokerage company. Characterized by extremely low loyalty to the employer, low self-association with your company. Local low-level employees will easily leave your company due to a ten-to-twenty dollar income difference — they won't even bother to warn you that they're leaving the company, they just won't show up for work one day. There are plenty of lower-level employees on the market, but smart middle and senior managers will have to be looked for. Natives of the CIS countries most often prefer to "write out" managers from home.

Marketing

Locals are very fond of bright colors and loud communications. Mobile Internet penetration in Kenya reaches 70-75%. Most of the traffic — mobile traffic from smartphone users. Now we are attracting traffic from social networks, later we will expand the number of acquisition channels. Radio is popular: not only motorists listen to it, but also just passers-by. You can often meet people who listen to the radio through their phone.

Clients

Our clients — poor people. This is one of the reasons why we operate in Africa and Latin America. Do you want to sell black caviar and Maybach — sell on Rublyovka, and mass financial services — in the poorest countries. Our audience — 70% of Kenya's population. Cut off 1% of more or less rich people and 20-25% of people who do not have regular access to the Internet.

In the countries of East Africa, the purposes for which microloans are attracted, — These are household needs. For example, buying a gas cylinder instead of starting a fire. Buying a mattress instead of sleeping on a pile of straw. Buying food, medicines, medical care.

There were cases of non-return, they are planned, incorporated into the business model. We have reached a level of default acceptable to many credit institutions in Russia. We will decrease further.

Africans treat credit obligations like Russians, that is, they don’t really like to repay on time. But they return — after all, we have been collecting debts for nine years. We do this strictly within the law. Of course, without telephone terror, pressure, threats and other exotic things that Russians associate with the collection business.

How our business works

The business model of the organization does not differ from the digital bank — bank without branches. With the difference that we do not accept deposits from the public. There is a "muzzle" — a website and smartphone application through which the public applies for a loan. Applications get into CRM.

After processing by the decision-making system, which is configured by the risk analyst, applications are segmented. For some, loan decisions can be made automatically. Other applications are sent to the call center, where employees call the borrower in order to confirm the data.

After using the loan, the borrower returns the money. If he forgets to do this, then a corresponding application is sent to the collection department.

The recovery will be carried out according to the classical scheme. The first part — this is the so-called soft collection, that is, informing about the debt through the call center, mail and social networks. The second part of the debt is outsourced to local collection agencies. These are all different processes, and we have already tested them during nine years of lending in Russia and six months of lending in Cambodia.

This is how we crossed my partner's offline technologies (telemarketing, customer service, debt collection) and mine (risk management, IT platform). In addition, we brought in new partners for online marketing and lead generation, since both of them didn’t really understand it.

It seems that the concept of "giving money to the poor in the backyards of the world" simple. But this business requires a serious resource base. Not just money, but employees, tested software, business logic, existing departments. In startup mode, everything will choke on the one hundred and first loan. Our back office was designed and built back in 2009. Just yesterday he served the issuance of loans in the village of Muezersky, and today he processes applications from Cancun. Although we also have a local call center in Mexico.

Features of working in Africa that you will encounter

When you come to work in another country, you have to be smarter, faster, more aggressive than any of the local entrepreneurs. Because you don't know anyone here. Everyone is trying to overprice their services, to be late, to throw. This is usually justified by the fact that there is some special specificity here: This is Africa. What's left to do?

To impose your own rules and not conform to others — you still won't manage business etiquette better than the locals. Therefore, you need to create your own business etiquette.

Do not take into account "local specifics"; and don't respect "traditions." The main local tradition — throw white.

What I noticed in people and their attitude to work and business

• People tend to be late for meetings. According to my observations, at least — five minutes, maximum — two hours. The solution to this problem is simple: do not work with such companies. We have established empirically that in any country there are latecomers, balabols and empty shells.
• You will always be treated like an ATM on legs. At first it's terribly infuriating, and then it becomes spitting. We just "bend" them to normal conditions. Do not bend — looking for new ones.
• We don't trust anyone — all information is checked. Example: I come to a meeting with a lawyer, he says that he will register a company for $ 150 thousand. I begin to clarify the laws, which I have already figured out a little. I see that the person is not aware of licensing. Please let me see the smartphone — Turns out he's a microcredit user. $150 thousand for registration and microcredits — these are two opposite poles of wealth. As a result, I register a company in another organization for $840.
• No one guarantees deadlines. Method of solving the problem: assign penalties for missing deadlines. Is that not accepted? Get rid of this contractor. This is a poor country — there are 100 more such companies standing in line for you. When a person or company is not ready to meet deadlines with money, you can be sure that they will be thwarted in the most vicious way. Sometimes they may not be lying, but simply not knowing. And they are afraid to admit ignorance.
• At the same time, everyone will say that they have their own traditions and this is how it is accepted here. That a letter should begin with "Dear John" and add "I hope this mail finds you well". But in fact, if you accept the rules of the game, then you will be treated like a "mzungu", that is, like a white person. Do all the work for four weeks instead of one or two. Make additional payments. Even forget about your tasks. All expressions of politeness — in order to chat and blur the meaning. This will not work. Anything we ask — "Hi, how it's going?" That's enough, because I'm Russian. Fuck etiquette. If we fire someone here, then the person will be surprised and refer to friendship. But we fire an employee, not a friend.
• Almost all business centers require prepayment for three to six months in advance. They include a deposit as part of another three to four monthly payments. They forget to include a service charge in the price (payment for electricity, cleaning, water, bathroom) — can reach another 20% of the monthly price tag. And don't forget about VAT. 16% will be added to the invoice for payment. We try to avoid those who introduce such additional payments. I went around three dozen offices, chose those who immediately had a clear and flat price tag. VAT, service charge, additional payments — an excuse to take your money.

Current status

In the spring of 2017, we received a license for lending activities in Mexico and other Latin American countries, in July in Kenya, and recently received a license in neighboring Tanzania. Now we give out $1,500 every day, and we are increasing the amount of issuance. We are going to give out much more.

Traditional African MFIs — these are companies focused on lending to poor villagers and micro-businesses related to agriculture. Therefore, any ratings will be meaningless — I would not like to compare credit institutions with different credit products, money distribution channels and different target audiences.

That is, they work according to the model of Grameen Bank, Nobel laureate Mohammed Yunus. Afrikaloan — one of the first online MFIs in the region and the first MFI with Russian roots. We issue loans under payday loans and installment loans. Among competitors, for example in Kenya, I will single out two companies — Tala and Branch. In just two or three years since the start of the business, their loan portfolios have grown to $12-15 million.

Plans

Africa is now the fastest growing region, and perhaps the only economic region that hasn't taken off yet. It has now turned quite strongly towards foreign investors: tax benefits are provided, investment protection is guaranteed. The conditions for long-term growth with rates above the world average for the next ten years have been created in this region.

As a point of growth, this is probably the most promising place on the world map.

Our business has already successfully pulled away from the runway. We already know how to form assets. As for liabilities — here the macroeconomic situation has successfully worked for us, when timid Russian entrepreneurs are thinking about how to save and increase the money earned in Russia. Preferably in dollars and away from the long arms of ill-wishers, including those burdened with power.

Our task — launch not two or three countries, but 20 countries. In order to level currency, political and macroeconomic risks. At the same time, entering the market and managing a business does not require such efforts as a classic offline business. Everything you need — legal shell and a local bank account.

The parent company provides lead generation, borrower assessment, debt collection, IT platforms services to local subsidiaries.

The average salary of a line employee in a Kenyan call center is $160, a supervisor — up to $300, regional manager — approximately $1000. We pay $600 for the office, communication — $200. The cost of a lead (attracted borrower) — 40 cents. The cost of the issued loan with all operating costs — $15 and less.

Main costs — legal legalization and accountant-auditor. In Africa, we spent only on Kenya and Tanzania. But Sasha paid about $120,000 to enter eleven Latin American countries.

We are lucky that we have our own funds for issuing loans. As the business grows, we plan to raise funds from outside investors. Now we have verbal agreements on investments from three Russian banks and a desire to provide a foreign currency loan from individuals — acquaintances and friends with whom we communicate in Russian business.

Our business model — network. If we are forced to close one or more offices, then the business will withstand this perfectly. Actually, the network model assumes in advance that some countries will be closed. No Musketeer ambitions. I just know that if I "launch" 10 countries, then three of them will be unprofitable, and we will close them, three will work to zero, and four will become chickens that lay golden eggs.

Regulation of the industry is virtually absent. Demand greatly exceeds supply — For every $10 that borrowers need, there is one dollar that local lenders can offer. Today we issue loans in five currencies, which are much more stable than the ruble. Another 15 countries are on the way. Today, the business shows a profitability of 430% per annum on capital in local currency.

It turns out that our business — this is not a startup that grows by "burning" investment money to increase the customer base. But rather, a working machine for making money here and now.