Financial startup Lenddo is hoping to improve access to financing for the middle classes in Philippines, and has taken an innovative approach to credit checks. Analogous to how brick-and-mortar financing institutions would rely on community references when making credit checks, Lenddo users one’s online social connections as a gauge for determining a borrower’s reliability and credit-worthiness.
Financing is not as easy in Philippines as it is in more developed economies. In this country of 95 million, only about 11 percent of the population owns credit cards. Given this, the lower- to middle-classes are not always able to access funds for emergency purposes like medical needs and other expenses.
An option can be to take out personal or business loans from loan sharks and financing institutions, although these can be cumbersome and expensive. Individuals without a good credit standing might even find it difficult to get approved.
Founded in 2011, the startup claims to have a user-base of about 350,000 from the Philippines and has since expanded to Colombia (2012) and Mexico (2013). “Our loans provide funds for everyday people to access education, health care and home improvement,” said CEO Jeff Stewart in a statement. In an interview with E27, Lenddo’s director for sales and marketing, Erika Aquino, says most of the company’s clients avail the facility’s financing for improving their quality-of-life.
“Our users are typically employed, tech-savvy individuals ages 18 and above,” Aquino said. “They are connected to Facebook and other social networks, but they have a difficult time gaining access to credit. They use Lenddo for funding the education of their children or siblings; for medical emergencies; for home improvement; for purchasing a mobile phone or laptop that they need for productivity; or even for funding a small side business of their own.”
She adds that the online processing makes it easier for the startup’s target market to apply for, and avail, loans. “We aim to make credit more accessible to the ‘underbanked’ market by giving them convenience as well as a quick turn-around-time.” Lenddo’s mission, after all, is to “help create an economically empowered and thriving middle class in developing countries around the world.”
Lenddo recently closed a new round of investment valued at US$ 6 million from existing and new investors. These include Golden Gate Ventures, Kickstart Ventures and Skype co-founder Toivo Annus. The additional funding will be used to accelerate the company’s global roll-out, and also develop new features that will improve the user experience for customers on platforms like Facebook, LinkedIn and Android.
Minette Navarrete, President, Kickstart Ventures, highlights social responsibility as among the key reasons why the incubator invested in Lenddo. “The Philippines, along with many other emerging markets globally, has millions of people in the emerging middle class who are beginning to participate in the financial sector but have no credit history, and limited access to formal financial systems,” she told e27. “Lenddo’s innovative use of social networks provides these individuals with access to financial services, creating fresh value and the multiplier effect of broader financial inclusion. We’re thrilled to support Jeff [Stewart, co-founder and CEO] and Richard [Eldridge, co-founder and COO] as they develop their services in the Philippines, Colombia and Mexico, and expand to the other relevant emerging markets around the world.”
Vinnie Lauria, partner at Golden Gate Ventures, agrees that giving access to a broad, previously unbanked, market will be beneficial in enhancing economic activity. “Through its proprietary technology and industry standard accreditations, Lenddo’s innovative solution leverages the power of social networks to help traditional banks issue credit to over half a billion people,” he said in a statement.
Lenddo’s fact-sheet states that most of its loans are repaid in time. However, for the “rare occasion” that a borrower fails to repay, that person’s social network is impacted. “In most cases their trusted community has enforced repayment via social pressure, as their Lenddo score and ability to access live improving loans is impacted as well.” However, Lenddo community managers personally reach out to clients to understand their situation and negotiate a win-win situation for repayment.
The “bayanihan” concept or sense of community is prevalent in the Philippine culture, and Lenddo capitalizes on social connections to make it easier for the middle class to gain access to credit. Micro-finance is for the emerging class, while banks are more targeted toward the upper class, Lenddo’s founders believe. With this, Lenddo focuses on using technology to economically empower the emerging middle class.