Bfree raised $1.7M in a pre-Series A round. It is expanding globally to take advantage of the prospects in emerging economies, where digital lending apps have recently exploded in popularity.
4Di Money, Octerra Capital, VestedWorld, Voltron Capital, Logos Ventures, and several other angel investors joined in the new round, bringing the total capital raised by the Lagos-based Nigerian credit management business to $2.5 million, after raising $800,000 in a seed round last May.
Bfree 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 was founded by Chukwudi Enyi (COO), Moses Nmor (CPO) and Flosbach (CEO), following their firsthand experience working for digital lenders in Nigeria, they were eager to establish better, ethical, and tech-inspired debt-collection tools and methods.
“We recognized a little bit of a breach in the value proposition of lenders – they are competent at giving out loans, but the credit market’s aftersales services didn’t function since collections operations were inefficient and not user friendly,” Flosbach explained.
Digital lenders, microfinance institutions, and banks are among the 30 credit institutions with which the business is now collaborating.
The startup creates defaulter user profiles using data provided by lenders and analyzes their data via an algorithm to forecast their behavior and offer the best collecting approach.
Bfree either refers customers to a self-service site, where they may set up new payment plans using their phone number, or follow up on their debt balance using automated communication (chat boxes, callbots, or IVR technology) or direct calls, depending on their risk profile.
The company also holds financial literacy campaigns on a regular basis.
In recent years, digital lenders have sprung up in emerging economies, giving loans to a demographic that has hitherto been underserved by traditional lenders.
Unlike loans from official financial organizations (such as banks), where borrowers must at the very least have an account, have regular account activity, and maintain minimum operating balances, the credit supplied is frequently quick and collateral-free.
Traditional lenders, on the other hand, 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 have been turned down by traditional lenders, but they have a high default rate (in mid-2020, Kenya’s default rate on digital loans was 23 percent), forcing them to hire collection agencies, which, among other things, use debt-shaming tactics like calling borrowers’ friends and relatives.
Bfree has contacted 1.2 million defaulters and is currently serving roughly 800,000 consumers, the majority of whom are from Nigeria.
By the end of next month, Flosbach expects the startup to have processed 1.4 million profiles.
Bfree has gained the services of prominent industry specialists, including CTO Konrad Pawlus, formerly of SALESmanago, and Yohan Theatre, formerly of investment management giant PIMCO, in preparation for its next stage of expansion.
“Lenders in the United States and Europe have the option of selling large portions of their debt portfolios to other parties. This means that they only bear a percentage 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 a primary source of this disparity,” according to Theatre.
“The arrival of DeFi (decentralized finance) is a game-changer: smart contracts can reduce transaction costs while increasing contractual certainty.”
“These are some of the risk-sharing mechanisms that we are actively providing to lenders and borrowers right now,” he said.
