BFREE, a Nigerian credit Fintech startup, announced that it had raised $1.7 million in a pre-Series A round to expand to Asia, South America, Europe, and Africa to capitalize on the opportunities in emerging markets, where digital lending apps have exploded in popularity.
4Di Capital, Octerra Capital, VestedWorld, Voltron Capital, Logos Ventures and several other angel investors participated in the latest round, bringing the total capital raised by the Lagos-based startup to $2.5 million after raising $800,000 in a seed round in May of 2021.
BFREE, founded in August 2020 by Chukwudi Enyi, Moses Nmor, and Julian Flosbach, provides financial institutions in emerging markets with ethical digital-first credit collection solutions. The startup now manages collection processes for more than 30 digital lenders, microfinance banks, and commercial banks in Nigeria and Kenya after just 16 months in business.
The company is currently conducting a large recruiting drive in Ghana, India, Uganda, Brazil, Colombia, Mexico, Russia, Poland, Pakistan, and Indonesia, among the 16 new markets in which it is establishing offices. This is as the company expands beyond Nigeria, where it began operations in August 2020 before moving to Kenya in July of last year.
Bfree co-founder and CEO Julian Flosbach told TechCrunch, an international blog, “We’re moving into countries with enormous populations, credit deepening, and an inadequate regulatory framework, where a behavioural collecting technique is likely to work.”
“We recognized a little bit of a breach in the value the proposition of lenders – they are competent at giving out loans, but the credit market’s after-sales services didn’t function since collections operations were inefficient and not user-friendly,” Flosbach explained.
Bfree, he added, uses ethical debt collection standards and collaborates closely with defaulters to develop tailored settlement choices, enhancing repayment rates and customer satisfaction.
Ethical debt collection processes protect customers’ personal information during the collection process, allow for flexible repayment options, and avoid unnecessary penalties such as late fees and debt shaming (as is the practice with many digital lenders at the moment).
Digital lenders, microfinance institutions, and banks are among the 30 credit institutions with which the business is now collaborating. The startup creates default user profiles using data provided by lenders and analyzes their data via an algorithm to forecast their behaviour and offer the best collecting approach. It either directs customers to a self-service platform, where they can set up new payment plans using their phone number, or follows up on debt balances via automated communication (chatbots, callbots, or IVR technology) or direct calls, depending on their risk profile. The company also holds financial literacy campaigns regularly.
Moses Nmor, the company’s chief product officer, showed enthusiasm for improving the company’s collections product and releasing new solutions that will change credit risk management in emerging economies. “Borrowers deserve lower capital costs because credit is an important engine of economic growth.” He stated, “We’ll make certain they get it.”
Digital lenders have emerged in emerging economies in recent years, providing loans to a demographic that traditional lenders have hitherto underserved. Unlike loans from official financial institutions (such as banks), where borrowers must have an account, maintain regular account activity, and maintain minimum operating balances, credit is frequently provided quickly and without collateral. On the other hand, traditional lenders require some form of collateral to protect them from losses if borrowers default on their payments.
Digital lenders provide much-needed credit to people who traditional lenders have turned down, but they have a high default rate (in mid-2020, Kenya’s default rate on digital loans was 23%), forcing them to hire collection agencies, which, among other things, use debt-shaming tactics like calling borrowers’ friends and relatives.
Bfree has contacted 1.1 million defaulters, and it currently serves around 800,000 customers, most of whom are from Nigeria. By the end of next month, Flosbach expects the startup to have processed 1.4 million profiles.
Bfree has secured the services of leading industry professionals, including CTO Konrad Pawlus and Yohan Theatre, who previously worked at investment management firm PIMCO, to prepare for its next growth stage. As the head of data decision-making and financial engineering, Theatre takes over. The two will be part of the team that will lead the startup’s new business as it attempts to disrupt traditional finance by utilizing blockchain technology in secondary debt markets.
Lenders in the United States and Europe can sell large portions of their debt portfolios to third parties. This means that they only bear a portion of the risk associated with the loans they make.
This isn’t always the case in emerging markets. Lenders are responsible for the entire credit risk. Higher transaction costs and contractual uncertainty are key drivers of this disparity, according to Theatre.
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