Lenddo Sells Microloans in Philippines, Eyes Expansion to World’s Emerging Middle Class
As a serial tech entrepreneur, Jeffrey Stewart has spent a lot of time working with outsourcing companies in developing countries, such as the Philippines. And he was always struck by a common complaint he heard from his workers in those countries. “They couldn’t access loans,” Stewart says. So earlier this year, he and fellow entrepreneur Richard Eldridge founded Lenddo, a New York-based company that seeks to administer microloans to working middle-class folks in the developing world. The Philippines became their first market, and they doled out their first loan in March.
Lenddo is anything but a bank, however. It’s actually more of a matchmaker for borrowers and lenders, with a platform that relies heavily on social media. There’s a reason for that: People in developing countries don’t trust traditional lenders, Stewart says. But they do trust Facebook. “We believed social dynamics could create a good environment for lending.”
Here’s how it works: Lenddo invites people to sign up for the site. Members can then invite co-workers and acquaintances to join, and connect with them on the site by asking them to be their “Lenddo friend.” The more friends they amass, the more points they earn towards their Lenddo reputation score—a metric Lenddo uses to determine a borrower’s credit-worthiness. Reputation, therefore, becomes a substitute for the traditional credit score, which doesn’t exist in the developing world, Stewart says.
Stewart and Eldridge hit on their business model by studying lending behaviors over the last thousand or so years. The ability to get a loan, Stewart notes, “used to be about your standing in the community. You went to church to find out whether someone was a good borrower. Then sometime in the ’40s or ’50s we moved away from that. What social networks have done is made it practical for lending to go back to its roots.” Prospective borrowers are still evaluated on financial factors such as annual income, but Lenddo also takes into account their connections when deciding who should be awarded loans. Lenddo administers the loans, which are provided by financial institutions in the local markets.
This summer has provided Lenddo with its biggest audience yet in the financial-services industry, thanks to the FinTech Innovation Lab, a 12-week program sponsored by the New York City Investment Fund and Accenture. Lenddo was one of 90 startups that applied for the program, and was one of only six to win a spot. During the program, Stewart and his co-workers gathered advice from experts at 10 global finance giants, including Bank of America, Barclays Capital, and Goldman Sachs. “We got to harden our plan against some of the brightest minds in financial services,” says Stewart, whose previous experience included founding online printing company Mimeo.com.
Lenddo also got $25,000 in seed funding from the FinTech program. Stewart plans to go looking for an institutional funding round next year.
In the meantime, Stewart and his staff of 11 are boosting their platform and talking to lenders, with the goal of expanding to four or five new countries in the coming year. Indonesia, Brazil, India, and China are high on the wish list, Stewart says. “A lot of people are moving into the middle classes in those countries,” he says.
Stewart says more than a thousand people have signed up for Lenddo—most of whom are working on building up their reputation score rather than immediately applying for loans. When he was pitching an audience of VCs at the end of the FinTech program on July 22, Stewart described the site as “a Farmville-like app where people can interact with their credit reputations.” It’s not like credit agencies in the U.S., which make it difficult for everyday consumers to track their credit scores and get information about what’s influencing them, Stewart says. “We tried to make it fun,” he says. “Our members can see their credit information in real time and understand how to influence it. We don’t look at a couple of transactions they made in the past. We look at their entire social graph.”
According to a running tally on the company’s site, Lenddo’s membership is growing 19 percent a week, and its loan portfolio is growing 25 percent a week. The average loan size is 20,840 Philippine pesos, or $493. About half the loans are for education, with most of the remainder going towards health care, relocations, and home improvements. “There are people in school who would not be in school if it were not for Lenddo,” Stewart says. “We feel good about that.” Lenddo’s revenues come from fees it charges the lenders, Stewart says.
It’s too early to predict whether Lenddo’s social-based selection process will really distinguish the good borrowers from the likely-to-default ones. But Stewart’s optimism is evident in his propensity to quote Mark Zuckerberg, Facebook’s CEO. “Zuckerberg says social media will change every industry,” Stewart says. “I believe it will change financial services.”