UK internet-based lender to extend credit to SA small businesses
Wonga Finance SA CEO Kevin Hurwitz (Source: www.bdlive.co.za)
UK-based lender Wonga is exploring the possibility of offering loans to small and medium enterprises (SMEs) in South African in the coming year. The international internet-based lending service, which provides short term loans for individuals, now plans to extend its service delivery to the commercial sector by offering smaller enterprises instant cash access needed for urgent business dealings, to be remitted within 3 months.
For Wonga.com, founded by two South African entrepreneurs, extending credit to South African SMEs marks a home coming. Wonga helps thousands of South Africans to meet short term financing needs by using a proprietary risk assessment algorithm which is different from the criteria that normal lenders use. This algorithm ensures that the approval process is super-quick and money is made available when it is needed.
Wonga – owned by venture capitalists – provides South Africans with a one-month loan of R2,500 ($250), for first timers, with interests and other fees costing the borrower R527 ($52). This brings the total payable loan to R3,027 ($303). Also, for existing borrowers, up to R8,000 ($800) is made available as a short term loan.
Following a ‘short-term, high-cost credit’ strategy, the payday loan company guarantees good returns on loans. But, since loans are offered to individuals, the risk factor is always of major concern for the lender. Wonga Finance SA CEO Kevin Hurwitz, however noted that the company uses a credit bureau and sieves through stock piles of data to assess the risk involved, adding that it normally declines 75 percent of loan applications.
The company operates in leading markets including United Kingdom, Spain, Canada and Poland, reportedly lent out over £1.2bn in the UK last year.
The firm’s 2012 accounts, published recently, show its lending was up 68 per cent on 2011, when it lent around £707m.
Figures from trade body the Equity Release Council show the total value of the equity release market in 2012 was £925.7m.
Moreover, Wonga also lent around 80 per cent of what the entire bridging industry lent, which is estimated to have been around £1.5bn.
Wonga is also among the top 20 biggest lenders in the UK. Although it does not do mortgage lending, £1.2bn of lending puts it at joint fourteenth with Principality Building Society in the top 20 lenders list compiled by the Council of Mortgage Lenders last week.
It provided around 3.8 million loans to borrowers, up 54 per cent on roughly 2.4 million loans the year before. More than 1 million customers were served in 2012, up 61 per cent on the previous year.
Pre-tax profit increased 35 per cent from £62.4m in 2011 to £84.5m in 2012. The firm says it makes around 5 pence profit on every £1 it lends.
Revenue was up 67 per cent to £309.3m in 2012, from £184.7m the year before.
Wonga was founded in London by two South Africans who wanted to the turn the credit market upside down. They spent three years perfecting the service in the UK, building it into one of the most innovative credit businesses around. It is Wonga’s mission to solve people’s short term and urgent cash flow problems with an equally short term and responsible solution.
Wonga plans to transform the South African credit market by offering small, short term loans online with more speed, convenience and flexibility than banks, traditional lenders and other websites. They remove the complexity and inflexibility consumers face whenever they need to borrow some cash in a hurry. The firm is a registered credit provider and is regulated by the National Credit Act.
Source: Company Website