Solvesting is looking to serve the estimated US$850 billion lack of credit that currently exists in East Africa. The gap that Solvesting have spotted is “The Missing Middle”, the huge lack of available credit for growth stage SMEs in emerging markets.
Ron Ben-Chaim commented on the why he decided to start the platform:
“During my research [for his MBA], I realized that there is a massive lack of available credit for SMEs in Africa ("the missing middle"), and from there on I started developing what Solvesting is today - a hybrid p2p lending portal connecting lenders borrowers in emerging markets.”
The platform launched in Kenya this week and has plans to continue to expand in Africa in the future. The decision to launch in Kenya is to do with the fact that Kenya has one of the most advanced financial systems in East Africa and it also boasts a developed ecosystem around financial markets. Also there are already peer-to-peer lenders operating in South Africa, such as RainFin and Lendico, and so Solvesting wanted to target a market that was ready for P2P lending but did not any platforms delivering the service.
The average size of the loans is between $5000-$200,000 and the average loan period is 6-24 months. The platform currently only writes business loans but in the future it hopes to move into consumer loans as well. For investors the returns on these loans are higher than are available else where, the average interest rate on them is about 15% on principal.
The platform is targeting lenders in Europe and North Africa and lenders have to commit a minimum of $5,000 to open an account.
The obvious problem for Western lenders who want to lend in emerging markets is checking the credentials of the borrower. Solvesting has looked to solve this problem by partnering with local financial partners on the ground. These partners source the loans and Solvesting rates them using its own algorithm. The platform does not take the whole loans; it buys a fraction of the loan, about 70%, which means the financial partners continue to hold skin in the game. This should ensure that the partners don’t go chasing bad loans. Solvesting enacts thorough due diligence on each partner to ensure that they are reputable. On top of that, one of the co-founders of the platform works from Nairobi in order to speak to and negotiate with local partners, and he ensures that Solvesting gets access to the partner’s entire loan book.
The platform is aiming to originate between $1 to $2 million in loans by the end of its first year. The idea of taking investments from Western investors and putting to work through SMEs in emerging markets has the potential to be very successful. It should appeal to the philanthropic side of investors, as well as offering them a great investment opportunity.