e-Mkopo is a pay-day-loan provider in Kenya. It was founded by the successful Russian crediting company DoZarplati. Read the story about how Russian entrepreneurs decided to expand to Africa and found their place under the sun there.
Success in Russia
In February 2019 Grupeer has added a new loan originator from Russia- DoZarplati. This company has fascinated Grupeer, as besides great returns to our investors they have no fear to try innovative approaches and make the first steps in the new business direction. It usually takes a lot of courage to be a first -mover, usually it is less risky to sit back and wait until your competitors explore the unknown territory. However, it brings fewer returns to the company too. DoZarplati was one of the first companies in Russia to offer pay-day loans (hence the name, DoZarplati means “before the salary” in Russian. Being among the first brought challenges to its co-founder and CEO Pavel Sologub, however, the result was more than satisfactory. Now, DoZarplati has more than 100 offices in 14 strategically chosen Russian cities and is the most recognizable brand in the hometown of St. Petersburg. Besides that, DoZarplati offers online services, covering the whole of Russia from Vladivostok to Kaliningrad. By the end of 2018, the share of online revenue increased to 58%.
The result of hard work has not only paid off, but also gave birth to a proprietary scoring model. Back in 2013, the scoring algorithm was very basic, evolving to a more sophisticated mechanism that allows processing 5000 applications in seconds. The scoring model was designed completely in-house by a team of talented data scientists and is considered their intellectual property.
The value of such a model is that it can be scaled and transferred to another jurisdiction, changing just the variables. That what the management of DoZarplati decided to do, as they knew that Europe is too competitive- they looked in the direction of Asia and Africa. After conducting careful research and identifying the demand for short-term loans, they found their next stop- Kenya. Kenya was perfect for its overseas expansion, as it is quite unique among other frontier markets. It was lagging behind in PC penetration and usage, most of the population was stuck using pagers. So, after the mobile revolution happened, Kenya jumped straight away to smart-phone era. This is perfect for companies such as DoZarplati, as they are relying on the mobile internet and mobile apps to make a sale. Besides that, 90% of the economically active population are living in big cities, where mobile internet is fast and cheap.
Identifying Kenya was an easy part, the hard part was to get to know the market with all its local specifics and characteristics. The solution came quickly- they found a resident professional with an impressive career in finance in the local market, educated in the UK. She has explained all possible pitfalls and was a guide through local mentality and culture. There are some traits that foreigner will not understand, for example, in Kenya a group of people can unite in a cluster of 10 people and form an investment club, called “Chamas”. More people are part of Chamas (41%) than own a bank account (32%). This Chamas is helping people to achieve personal investment goals, for example, save for kid’s education or buy property in the future. This cultural specific is very important when a foreigner is trying to enter the local financial market. That is why the management of DoZarplati was very lucky to meet such a guide through local customs and traditions.
Knowing its way around
Being a foreigner in Kenya would not be a helpful conducting business there, so the management decided to open a company that would not be affiliated with parent company DoZarplati. Besides the local director, the company has chosen a name that would be associated only with local market- e-Mkopo (“mkopo”, means “loan” in Swahili). After adapting the scoring model to the local market, and finding reliable and accurate databases, the e-Mkopo has “opened its doors”- launched online 6 months ago, at the end of 2018. The physical office is located in Nairobi and employs 3 local professionals. All staff from St. Petersburg office are also actively involved in bringing their expertise of the industry and best practices to Kenya. DoZarplati is known for their loyal relationships with clients, for example, they never engage in aggressive debt collection, but work together with the customer to work out the best schedule to repay the borrowed money. Additionally, the company has worked out a way to avoid such cases from the beginning, calling it a prevention mechanism. Each client is assessed in the begging of the application process what are their chances to be late on a payment. This is very helpful when planning money flows.
Kenyan consumers welcomed e-Mkopo with great demand for its services. The typical customer is an office worker or self-employed traders (such as fruit sellers, for example). The scoring model rejects around 70% of all applications. This screening process helps to keep the default rates very low, around 15%.
Pavel Sologub says he is very pleased with the strategic decision to expand to Africa. This market is very promising and has great potential for such services. Moreover, DoZarplati plans to open companies in Nigeria and South Africa. We at Grupeer are very excited to cooperate with such determined professionals and offer our clients to invest in loans issued in Kenya.