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Consumer Credit will Make Banks More Profitable – Yvonne Johnson, CEO Indicina



Yvonne Johnson is the CEO of Indicina,  a consumer credit  start-up which aspires to provide every business in Africa with tools to build  faster, safer, and smarter credit products


Our technology allows for real-time analysis of applicants’ cash flow statements. In real-time, you can decide if you have the comfort to lend. It’s not a guy in credit looking, it’s technology – predictive analytics – so it’s easy to see quickly that this person earns N250,000 every month and consistently has N30,000 or N40,000 left at the end of every month.”

Please, explain what Indicina does in terms the plumber in Mushin would understand.

Very simply, it is to close the consumer credit gap. There is a big consumer credit gap in Nigeria. By consumer, I mean lending to individuals and SMEs. I used to work at First Bank. I left an investment banking job in New York to join the team of Emir Sanusi. First Bank is the oldest banking group in Nigeria on a very large scale. I came to understand the challenges of scaling a consumer lending portfolio.

It is easy to give a large corporation $500 million and even if you had 20 General Managers processing that loan, waking up and going to a factory, you would still make money off the loan because of the size. The challenge with consumer lending is how do you profitably lend a million people a million naira each? The challenge of underwriting at that scale is serious. Retail lending is riskier than other types of lending even before you add the problem of scale.

I studied Computer Science before doing an MBA and going into the financial services sector. So I was quick to grasp the potential of digital banking; it can be used to solve a lot of consumer lending problems. There is a lot of data generated which can be used to make intelligent decisions about spending patterns and risk profiles. 

So the short answer is that the mission at Indicina is to use technology to close the consumer credit gap in Nigeria and Africa. Countries like Nigeria are the last places in the world where people like you and I, professionals, and employees with stable incomes cannot get streamlined access to consumer credit.

When you say consumer credit, it is a broad spectrum. Are you looking at people who need to buy electronics or people who need to borrow money to buy houses? 

The focus is on the consumer. When you say consumer lending, the definition covers everything from a short-term N5,000 loan to a loan to buy a car or mortgage (loan) for a house. It’s anything that an individual or consumer desires to buy. Having said that, we are starting with a segment.  We are first focusing on non-collateralized products. We are helping a lot of the institutions we are working with now improve their capacity for processing loans tied to salaries, microloans, cash loans, etc. We have started with the unsecured side of things and eventually, it is to move into things like auto loans, equipment finance, and others.


Also Read: Many SMEs Divert Business Loans to Building Houses

For now, who is your typical client?

There are three sets of clients we are working with. One of them is the banks. You really can’t get away from the size and the scale of the banks. They are more aware that technology offers them the tools to expand consumer lending business safely – seeing it as a sustainable good business rather than a risky drain.  Banks are now growing their salary loan portfolio. We are making things less restrictive. We work with banks to apply predictive analytics and machine learning to understand the customer’s financial profile and hence the risk of lending to the person.

The second set of customers that we work with are the Microfinance Banks (MFBs). The idea of MFBs is precisely to do consumer lending, bring credit closer to ordinary folks. With technology, they can better fulfil their mission. 

The third category of clients we are working with are start-ups in the digital banking and lending space. Note that Indicina is not a digital bank and we also don’t lend money. We don’t have a balance sheet. We work with start-up digital banks by providing them with the technology, with powerful tools that enable them to do their business better, get a more precise financial profile of their customers, and thus reduce the risk of lending. 

So, what is the size of the market now in terms of salary loans and where do you think your technology can take the market?

International development agencies estimate the consumer lending gap to be a few hundred billion dollars. This is the gap between total existing consumer loan portfolios and what is possible given economic fundamentals in Africa. In Nigeria, Banks should aspire for a consumer loan portfolio upwards of N100- 200 billion. We are very confident that with our technology there is no reason for a bank not to grow its consumer lending portfolio by at least 20% every year even if it is very conservative and is playing it safe. 

Are you confident that consumer lending could grow at this pace given the lack of supporting infrastructures such as reliable identity verification and credit check systems?

There are multiple ways to look at it but the short answer is yes. Our digital financial infrastructure has been strengthened over the years, which has allowed for a new generation of digital banking products. A key example is the Bank Verification Number (BVN). With BVN, you at least know who the person is. Once that is established, the second thing is to decide if the customer can afford to repay the N100,000 he or she wants to borrow. That’s where the credit bureau report and analysis of the bank statement come in. Indicina has tools to analyse the transactions and determine the capacity to repay the loan. All this did not exist 10 years ago. 

Our technology allows for real-time analysis of applicants’ cash flow statements. In real-time, you can decide if you have the comfort to lend. It’s not a guy in credit looking, it’s technology – predictive analytics – so it’s easy to see quickly that this person earns N250,000 every month and consistently has N30,000 or N40,000 left at the end of every month. If you gave this person a N50,000 loan to be repaid over three months, he or she can afford the N12,500 per month repayment. So you can decide in 5 minutes to give the loan – after you have seen there is no incidence of not repaying a loan in their credit report.

Also Read: Lagos State Accounts for 79% of Credits Booked Nationwide – NBS

When I first came back to Nigeria in 2009, I would not think it’s so easy to process a consumer loan because these important elements, the infrastructure, were lacking. And it’s getting better. The Central Bank of Nigeria is working on a policy known as Global Standing Instruction (GSI) which simply means a bank can recover a loan given to a customer in any other bank account the customer operates if he or she fails to pay. Lending is a circle and the easiest part of that circle is disbursing the loan and the hardest part is getting it back. The infrastructure to aid banks to get loans repaid is fast developing in Nigeria. Our technology is an important part of this infrastructure. 

Is your technology enabling the banks to eat the launch of the fintechs?

AI-driven tools are definitely superior in supporting consumer lending from both Banks and Fintechs. Banks currently have greater distribution channels and lower funding costs. However, the consumer loan gap is so wide the banks cannot mop off everything. Different kinds of financial institutions will keep playing in the market for consumer loans even though the banks have the advantage of cheaper funding. What I am happy about is that when we talk to potential clients, we often find out that we are pushing an open door. Banks’ customers are also driving the move towards technology-assisted lending. Few people want to go inside a bank to do anything now.

Would you agree that as the banks master the tools and lend more to consumers, the fintechs who have a higher cost of funding will be pushed to the riskier end of the market, like with the guy with no stable income and poor credit record?

The fintechs still have a big advantage. Many of the banks are just waking up to broad-based consumer lending. The fintechs still have the advantage in terms of the experience they are giving to the customer and is not a trivial thing. Some of the banks still require customers to complete a paper form at some point. So the fintechs still have an edge. Fintechs are also very innovative so they can enable other types of consumer finance products besides cash loans. For example, equipment finance. They partner with online retailers like Jumia. So, if you are ordering a refrigerator online, the financing is from a fintech. They make it very seamless.

Even with credit records, some people in banks still believe that many Nigerians don’t make prioritise paying back a bank loan. The consumer credit culture is far from taking root. 

I agree that there’s a lot of consumer education that needs to happen. The gap is so wide millions have never taken any sort of loan from a bank so consumer credit is not in the culture. All of a sudden, people are having access to credit for the first time in their lives. A consumer credit education campaign needs to happen around teaching people what credit is, the need to pay back, and putting loans into productive use. But I also fundamentally believe there is a lot of genuine demand out there. There are a lot of SMEs that need working capital to grow their business. There is also a lot of viable demand from people who have salaries but need some money to finance a purchase or a healthcare need. The present infrastructure, including credit bureaux and now the Global Standing Instruction, will increasingly incentivise good behaviour when you put it all together. There is a lot of genuine demand and this is what we should focus on. There will be the odd person who doesn’t want to pay back. It’s now much safer for banks to participate in closing Nigeria’s massive consumer credit gap profitably.

Given that SMEs seem to have a reputation for borrowing at very high-interest rates and repaying, wouldn’t it be more sensible for a bank using your technology to deploy it to turbocharge lending to SMEs rather than the guy who wants to be a new flat-screen television or 2015 Toyota Camry?

Some will say that the SMEs credit is for working capital therefore a productive use. The fundamental reason why microfinance banks lend at a higher rate is that the cost of their funding is higher. There is a set of people that are more interested in SME lending because they are just a direct link to productivity. So from that perspective, especially with an economy like Nigeria that needs all the growth we can get, financing SMEs could be more attractive. However, the guy who wants to buy a fridge in some ways also aids productivity as a fridge is a productive item in his home, and if he can finance it and pay back, whoever is selling that fridge or producing it can now sell a little bit more. So there are all sorts of linkages to job creation. 

Also Read: Non-Performing Loans Climb by N50bn in 2 Months Over Credit Growth

How will you describe where you sit between technology providers, financial institutions and their customers, and the retail industry?

We are a technology provider so in a way, we are in the background. We are working with the banks so they can serve their customers better.  I, therefore, see us as enablers. The end consumer does not know that we are in the scene, they don’t see our names or our branding anywhere because we are in the background. In a nutshell, we are simply enablers to our customers – the banks – to serve their customers better. That is a deliberate business model that we choose. We are not a digital bank or lender. We don’t have an app out there that you can go and download. We are a business-to-business offering. 

Can you take a bold guess at what will be the ratio of consumer lending to corporate loans in Nigerian banks, say in the next 10 years?

I will say 50–50. As lenders adopt improved risk innovation, they will naturally tilt towards what is ultimately a more profitable business i.e. consumer lending. 

Are there data privacy laws or issues hampering your ability to gather and analyse the data you need to deliver your services?

We have to comply with data protection laws and it is a good thing. My technology background has enabled me to appreciate the power of technology and the risks involved. People download apps without reading the terms and conditions. It’s scary the amount of data being collected and what some companies know about people. There is a generation of people coming up and it’s second nature, they don’t think about it. I don’t see it as a challenge instead I welcome the opportunity to comply with policies. I think it is important. Working with the banks we tell them to inform the people about the data used. I welcome the idea of informing people about what data is collected. Also, technology providers like ourselves should have the discipline of not just collecting data just for the sake of collecting but to be very responsible about how it’s done and how the data is used. There are different policies like the GDPR and a host of them. We welcome the opportunity to comply with all of them.

Indicina’s number 1 goal in 2021?

For an early-stage start-up like us, growth is still paramount. Being able to serve more clients and working with more institutions to enable them to do consumer lending at a bigger scale is important. It’s very clear to us that the problems and the challenges we tackle are not just a Nigerian thing. The same challenges are in other African countries. We aim to serve some of these markets and work with financial institutions in growing consumer credit in a very measured and disciplined way.

Abimbola Agboluaje

Abimbola is Managing Director of WNT Capitas . He consults on strategic communications and investment risk.

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