South Africa has one of the largest economies in Africa, but its economic and social disparities lead to a vastly underserved population in terms of financial services. Compared to other emerging economies around the world, the country does have relatively high bank account penetration rates (at around 70 percent of the adult population). Still, half of this banked population is “thinly served” and does not have access to formal credit.
Businesses face the same challenges individuals do: formal micro, small, and medium-sized enterprises (MSMEs) are usually unable to access credit from their banks, which struggle to properly assess small business risks. The kinds of nonbank financial institutions that often target underserved markets in other parts of the world are absent in South Africa. There is a microfinance sector, but it focuses on serving informal businesses and individuals, creating a “missing middle” — a large gap between these informal clients served by microfinance and the larger corporations that are able to access bank finance. In such an environment, innovative fintech companies often seek to provide alternatives, as seen in our recent publication Bridging the Small Business Credit Gap Through Innovative Lending, which highlights the challenges small businesses face in markets around the world.
Lulalend, an online lending platform serving small businesses in South Africa, is one of the companies using tech to bridge the gap for small businesses.
Launched in 2015 in Cape Town, Lulalend is South Africa’s first online and automated provider of short-term funding for MSMEs. Lulalend lends exclusively to these businesses, and most of its funding is used for inventory or equipment purchases, renovations, or marketing.
Unlike traditional financial institutions, Lulalend allows small businesses to apply for and receive funding without visiting a bank branch. Its lending decisions are largely automated, and funding can be provided within 24 hours.
Lulalend leverages data from alternative and online sources, such as electronic bank accounts, payment gateways, online accounting companies, e-commerce marketplaces, and any other partners that could provide additional data. It even has tools to digitize offline data — for instance, it can “scrape” numbers from uploaded paper-based bank statements. The company uses this collection of data to feed an innovative scoring algorithm that allows them to evaluate applicants and provide funding quickly, conveniently, and transparently.
In a survey Lulalend conducted with local small and medium enterprises, 69 percent stated that access to funding could significantly help their business grow. Through innovation, Lulalend is seeking to do its part to support healthy growth in South Africa’s small business sector.
This article is part of our global series on MSMEs in seven key countries/regions where we work. Read the paper Bridging the Small Business Credit Gap Through Innovative Lending.