Savings and investment have been an integral part of our local community from pre-colonial times. This largely due to the communal nature of the African community – we naturally tend to look out for each other, even where finances are concerned. The advent of formal and structured financing avenues have not completely substituted the thrift financing vehicles, known popularly in their local names – ‘Ajo’, ‘Adashe’ and ‘Esusu’.
A recent survey by Lendsqr across over 3,500 respondents uncovered that about 20% of Nigerian adults still participate actively in thrift and informal finance associations. This is mostly done within closed communities such as marketplaces, churches, colleagues at work, schools and public sector ministries, departments and agencies (MDAs). Members of these cooperative societies make daily, weekly or monthly contributions to collectors and take turns to receive a lump sum according to a predetermined schedule.
These schemes afford participants the opportunity to save a percentage of their income alongside others and access the pooled funds at a later date. These funds can be used as capital injections for the members’ businesses and allow them to meet up with their heavier financial obligations such as school fees and rent. It’s safe to say that Ajo and its other variants of savings and financing businesses will remain here for a while. And they will continue to contribute significantly to several micro-economies in Nigeria.
It’s very likely that you are a member or proprietor of such an association. In this article, we provide insights as to how you can utilize digitisation to improve the performance of your Ajo lending business.
The limitations of running an Ajo lending business offline
Our findings show that most Ajo businesses are typically managed through either manual (a physical loan log) or semi-manual options (using a Microsoft Excel spreadsheet). This manual operation creates an inherent restriction to the ability of the business to scale. And even more, it creates opportunities for errors that can be calamitous for the Ajo manager.
Let’s take an Ajo collector in a marketplace for example. A typical day for this collector involves physically walking through the market, visiting the shops and stalls of all members to collect their contributions. This may take up to an hour or even more. Going shop to shop is an appreciated part of the Ajo model in this case as market traders would rather participate in a financial scheme from the convenience of their shops than go to the bank. After making the rounds, the collector would then have to record all these transactions in a physical ledger before heading to deposit the money in the bank. What happens when more members want to join? What happens when members want to increase the amounts they contribute? This means longer hours making rounds, exposing oneself to the dangers of logging around bags of cash, holes in the record keeping due to human error, etc. And if the solution is to employ more hands, then the cost of operation goes up. Trying to scale a business manually is not without its own tedious hurdles.
Additionally, such lending businesses are unable to stack their data in a manner that allows them to draw insight for intelligent business decisions. Decisions on whether or not to extend credit allowance to members are based less on logical steps. This exposes the business to defaults.
Also, despite the rich volume of data that such lending businesses possess, individuals are unable to feed it into the formal databases, thus limiting their ability to secure capital beyond the capacity of the immediate members of the association. How does one prove to a bank that they won’t default on their loan because they never defaulted on their informal Ajo loan payments?
How to digitize your Ajo lending business for free
There are several benefits to moving your Ajo business to a digital platform. You create a digital footprint for all your transactions, making it relatively easy to track your business metrics and draw on funds from larger lenders to increase your capital base. No more putting the faith of your entire business and people’s livelihoods in a physical loan book which can get lost or damaged.
The digital footprint also helps eliminate contention amongst the community members which often springs up in informal associations as such about the appropriation of funds. Avoid smears on your reputation with the transparency that operating digitally can introduce to your Ajo lending business. All members are aware of the size of their contribution and can confirm the amount due to them is fully paid.
In addition to these benefits, you have access to a wider range of data about your community members. For instance, in the Lendsqr ecosystem, you can get insights on whether your members are owing other lenders which may adversely impact their ability to repay you.
Even more attractive, is now you as the business owner can also enjoy the convenience you afford your customers. The lending-as-a-service platform allows you to disburse loans to your members with a single click and will greatly improve how you run your Ajo business.