L-Pesa Microfinance is a fintech startup poised to take advantage of the fast-growing need for financial services in the developing world. The company has validated its operating model over the past 24 months and has built sophisticated technology, automating most of the operation. Its primary barrier to growth at this point is its ability to fund user acquisition and loans. The loss ratio on loans runs below 10% while return on loans is approximately 25%.
The idea for L-Pesa was incubated for a decade, and the business was launched at the time four important market forces converged to allow scaling:
- Big Data, Artificial Intelligence & Blockchain
- Alternative Credit Data
- Mobile Technology
- Biometric Identity
L-Pesa has harnessed these market forces and built technology and a proprietary credit scoring model that allows it to quickly scale microlending in developing countries while keeping loss ratios below 10%. The solution is highly automated, allowing a small back office team to support high volume loan origination. All loans are serviced by L-Pesa.
Ron Ezra Tuval, the founder and managing director of L-Pesa, has extensive experience in the developing world, primarily concerning technologies-related agriculture and tourism projects. Ron first came across microfinance in South East Asia and spent a decade incubating the idea of L-Pesa while waiting for the required technology to mature. Ron has built a strong and diverse team for L-Pesa with in-country managers operating in Tanzania, Kenya, and Uganda, and a development team in India. There is also a back office team in Tanzania, Kenya, and Uganda handling background checks, credit approvals, and customer service. The technology, marketing, and accounting teams operate on a virtual model and consist of experienced staff based in Europe, USA, Africa, and India.
L-Pesa has a strong focus on automation. 95% of the user acquisition and loan underwriting process is automated and therefore extremely scalable. The company has spent two years developing its customer-facing and back office systems using a team of seven software developers. The user experience is based on mobile and web interfaces, and marketing is primarily accomplished via social media and SMS.
L-Pesa’s technology stack is built on top of Amazon Web Services, an extremely scalable on-demand cloud computing platform which has been or is used by major brands such as Netflix, Airbnb, Pinterest, and Spotify. L-Pesa has integrated a number of third party applications to perform tasks such as SMS messaging, user verification, and marketing. Funds transfers are handled via integrations with mobile money service providers such as M-Pesa, Airtel Money, Tigo Pesa, and MTN.
L-Pesa has issued over 38,000 loans since going live in March 2016. Over 170,000 users have registered based on social marketing campaigns run on a minimal budget. The marketing strategy has been refined over the past 24 months, and L-Pesa is now prepared to launch marketing campaigns via SMS and social media with a conservatively projected customer acquisition cost of $1.00.
The founder of L-Pesa, has invested approximately $500,000 to date. The business was launched in Tanzania in 2016 and in Kenya in August 2017. Soft launches are underway in Uganda and India. The company’s technology is stable, scalable, proven, and will support the company’s growth plans. At this point, L-Pesa has hit a growth barrier—there is not enough capital available to lend to everyone interested, and the potential for user acquisition is almost unlimited but requires capital for marketing expenses and support staff. The company is now raising funds to take advantage of its leading position, strong platform, and nearly unlimited opportunity to extend financial options to a large portion of the earth’s population.