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The late fees conundrum.

As we designed our financial product we looked into the issue of late fees and how to handle them.

Over the years this has been a contentious issue because many a loan provider compounds interest and principle when a borrower is late eventually making the loan facility harder for the borrower to pay.

At Card Pesa we found a simple way of dealing with late payments that we think works for all parties and in our view makes business sense.

The basis of late fees is that when we lend money and as a borrower you do not pay back on time, you hinder our ability as a lender to earn the same amount of revenue from the money advance to a borrower that has not paid back in time as we would have had you met your obligation on time.

We therefore came up with a simple formula of charging 4% of interest you were supposed to have paid per day to compensate us for the income denied to us by a client holding our money which would otherwise be lent to someone else on the platform.

So our formula for charging late payments is therefore 4% monthly interest per day multiplied by the number of days a borrower is late. (Simply put for example the interest on 100,000 ushs lent is 15,000 shillings, our late fees would be 600 ushs per day times the number of days in arrears)

Once we as a lender and our client as a borrower understand this notion and agree in principle then we feel that we do not need to engage adverse measures when clients are late as our product is designed to meet the needs of those engaged in enterprise or gainful employment in the Ugandan environment as it is now and we are very aware that most payments made by trade creditors in this economy are seldom made in a timely manner.

We therefore simply request all our members to communicate to us when they wont be able to meet their obligations ontime and we will wait in line with the above understanding.

We at Card Pesa are trying to design and implement practical financial solutions for the common man delivered in the most convenient way possible so we encourage as many people to sign up and try our product.
Card Pesa
Card Pesa
How to build a sustainable financial model for a fintech.

One of the questions we get asked more often than not is why we have an annual subscription fee and aren't we just collecting money under false pretense?

At Card Pesa we are trying to build a business that will meet the needs of our clients today but also be robust enough to meet those same needs tomorrow when technology changes as the need for financing will never go away. (Enterprise always needs more capital than the resources available)

We provide short term working capital and emergency loans like most other providers but we are also keenly aware that to build a good business we have to educate and improve the lives of our customers so that they use the credit provided most economically for it to make sense to them. We believe to build a business you have to build your customer.

We therefore firstly do not charge the subscription fee to everyone who applies to join the service by filling our online application.

We only charge those who we believe meet the criteria of persons who we determine can take and afford the type of credit we offer after evaluating the information provided when the form is filled. (Please see the introduction to the sign up form explaining this concept attached)

So simply explained, we charge a subscription fee as the basis on which we build and adopt the technology that ensures that we can service our clients 24 hours a day 7 days a week on multiple platforms in every part of Uganda where one can make a phone call on a mobile network.

If you also refer to earlier posts you will see the concept known as "Pesa Talks".

As we grow we intend to build an eco-system that provides value to our members through providing financial literacy conferences, financial news/business alerts, webinars and networking opportunities with the aim of building the entrepreneurial knowledge and skill set of our members as well as building a Card Pesa Society of indigenous entrepreneurs who share experiences.

Our aim is not just to give out fish but teach our members how to fish by arming them with the information that makes that possible.

To do all these things sustainable we have to "cut our coat according to our cloth", therefore as much as we would like to sign up everybody we are cognizant of the limitation in our resource base which makes it imperative that we charge for those extra services we currently offer and intend to offer in order to be sustainable and grow as a business.

We also believe that nothing that is worthwhile in business is free, so we have to ensure that our clients value and receive value when they sign up for our service and thus our model.
Card Pesa
Card Pesa
The Card Pesa Challenge

Every business seeks to solve a problem. This is our understanding of the problem we are trying to solve with our product

Uganda has 78% of its population under the age of 30.

What do we know about this demographic especially the young adult 18 to 30.

They are more likely to be educated, they are more likely to use technology, (smart phones as opposed to analog phones), and most importantly they are in there most productive part of their life in terms energy, ability to try new things especially to experiment in enterprise. (Many polls over the year have shown Uganda to be one of the most entreprenierial countries in the world)

What else do we know about this demographic.

They are most likely not at a stage in their lives where they have any form of meaningful collateral that can be used to secure funding (long term or even working capital) to build their enterprises or even fund their livelihoods.

Yesterday we did a simple poll of our employees, partners and some customers and asked them what they would offer for security (collateral) if asked to provide them. 98% percent offered electronic gadgets like TV screens, radios, phones and laptops.

We all know that the one thing that is for certain is electronics lose value faster than any other asset because of the pace of improvement in that space. A 2 year old electronic gadget will most probably be obsolete in 2 months. So really what is the value in that collateral.

We at Card Pesa recognise this challenge. We understand that the above mentioned demographic is critical to the development of a nation and therefore should be invested in so that the education that has been given to these youth is utilised when they have the time and energy to take risks, fail and adapt.

Once you understand this concept then you will understand why as a company we will use artificial intelligence, evaluation of social networks and earning infomation to determine which youth to invest in without asking for collateral which we are sure they dont have.

At Card Pesa we believe that through our model we will lead the charge to help move resources from the older generation who have collateral and no energy to push and build enterprise to the youthful generation who have the drive and energy but cant access capital and funding under normal conditions because of lack of collateral.

That is the Card Pesa challenge.

Below is what todays data on who signs up and how long they have been in business tells us about the demographic we are targeting.
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Card Pesa
Our Leap-of-Faith assumption was clients given affordable credit in a convenient way will pay back the credit advanced without the need to call on collateral.

Month two since launch of the platform PAR and NPA are ZERO.

70% of clients who used the service in month 1 used it again in month 2.

Revenue generated is in a multiple of number of new clients signed on which is encouraging.

So for now the minimum viable product has shown traction and can only grow so we will continue to Build-Measure and Learn.
Card Pesa
Card Pesa
There are many examples of companies that are litered all over the world especially the developing world which are trying to provide credit using parameters that are unique to their local environments and thus have proved to be gamechangers in the financing of small enterprise in their markets.

We as Card Pesa aspire to emmulate these types of companies and help drive a change in how and to whom credit is given in our region.

With an over 70 pecent youth population also mostly engaged in subsistence agriculture we are piloting means by which we assess credibility without relying on collateral as most of the populace does not have any and with the current population trends will not have much in the future but need credit to be productive and participate in the economy.

Examples such as these in the article below continue to inspire us to stay the course especially in as far as raising capital to prove that it can work in this market and thus change the lives of a number of people.

https://www.bloomberg.com/news/articles/2019-07-28/jack-ma-s-290-billion-loan-machine-is-changing-chinese-banking