What is Liwwa about?
liwwa is a marketplace lending platform that provides funding to small and medium businesses in Jordan. Our mission is to support job and income growth in the region. To date we have underwritten about 10 million USD in loans. This has helped to create 475 jobs in Jordan, 1.77 million USD in income, and 13.05 million USD in economic output.
What are the three main advantages for investors?
The type of investors we target are financially-savvy professionals who already have a portfolio of investments. They are attracted to our service because it is a way for them to further diversify their existing portfolio. The other advantage is that there are no big barriers to testing out the platform – provided he meets certain basic criteria, anyone can register and there is no minimum amount required in order to start lending. Once an account is activated and the investor is ready to get started, the power of choice is in his hands. He is able to browse the various campaigns, read through the credit scoring and business information and select which ones to participate in. A final advantage to using liwwa is the relatively high returns; our Internal Rate of Return across the liwwa portfolio stands at 9.45% for the last 12 months.
It is important to note that the investment is unsecured and therefore a high risk one. This means that if a borrower defaults on his loan then the investor stands to lose any money that he has funded to that particular business and not yet been repaid. We aim to disclose as much information on this risk as possible throughout our website. We also keep investors regularly updated on progress to recuperate the funds in the event of a late payment from the borrower.
What are the three main advantages for borrowers?
There is a 240 billion USD capital access gap in the MENA region. For borrowers, we provide a much-needed alternative to bank financing. The liwwa financing proposition is attractive because we do not require collateral, and because we offer an extremely swift process. We are aware that most borrowers are in need of purchasing supplies or assets rapidly to continue growing their businesses. We commit to reviewing all applications within 48 hours. If an application is approved, the borrower is able to access funding straight away. And finally, we are transparent and we do not charge any up-front or additional fees. A Murabaha rate that an approved borrower is offered is directly related to the riskiness of his business, as determined by the credit assessment and the resulting credit score. Our friendly customer service team ensures that applicants are well informed throughout the process.
What ROI can investors expect?
The return on investment that investors can expect is directly dependent on their risk appetite. Generally speaking and assuming no defaults, an investor who puts all of his funds in low-risk campaigns is likely to make a lower IRR* than an investor who funds only medium- or high-risk campaigns. We encourage investors to diversify as much as possible across risk level as well as sector and loan tenor. Our current liwwa index stands at 9.45% for the last 12 months.
*The liwwa index reflects IRR, or Internal Rate of Return. More information on the Internal Rate of Return can be found at the following link: https://www.liwwa.com/help/irr
The technical platform is self-developed to the extent that the proprietary data is all owned and managed in-house. There is a large focus on predictive modeling, and on collecting enough data to leverage this more in the future as a means for building efficiencies into the credit assessment process.
How is the company financed? Is it profitable?
The company has raised 5.55 million USD from investors and 6 million USD in debt to date. Our investors include Silicon Badia, Bank Al Etihad, DASH Ventures, and Samih Toukan. Our investors include a number of banking partners Bank Al Etihad, Capital Bank, Arab Bank, and Ahli Bank.
We will achieve profitability in 2018, and we are currently working to close a Series B round of investment.
What were/are the main challenges of the market you address?
IFRS 9, with its provisioning rules, is one of the main drivers of banks’ reticence to lend to SMEs. The market demand for loans hasn’t appreciably changed, and one could argue that market risk has stabilized in many MENA economies – so the accounting rule change is having an outsized impact. Companies like liwwa are poised to fill a need because much of the debt that liwwa manages is treated on an off-balance sheet basis. Retail lenders and non-bank institutions can contribute to filling the SME lending gap given a difference in risk appetites and a more generous perspective on solvency ratios.
Is Liwwa open to international investors?
liwwa is currently open to investors from the MENA region and Malaysia. We cannot unfortunately on board investors from other regions at this time due to strict compliance regulations imposed by some countries like the United States. We are working to be able to offer our services more widely in the future.
Which marketing channels do you use to attract investors and borrowers?
Our investors and borrowers are two vastly different audiences, and our marketing strategy reflects this.
For investors, marketing is varied and a combination of word-of-mouth, digital and more traditional forms of ATL advertising, the latter something we have recently started scaling up. We recognize that investors will want to know more about the company and want to trust in it before they start actively investing, and this make take time. Through all forms of advertising we encourage potential investors to learn more about us and we provide a lot of transparency to facilitate this. For example, anyone can read through our portfolio results www.liwwa.com/help/stats, or our blog blog.liwwa.com where we provide insights into how we work and articles on technology and investment.
For borrowers, social media marketing has been an important and cost-efficient tool for us. We also rely on a Sales team to spread awareness and build relationships with potential customers. As a result of our investment in maintaining customer satisfaction throughout the whole application journey, repeat borrowers currently make up nearly 50% of our portfolio.
Where do you see liwwa in 3 years?
The medium- to long-term focus is on continued improvements to our credit assessment process using technological efficiencies. In the next few years we will have a vast amount of data on the market that we can better leverage for predictive modeling. This means that we can gradually rely more on a combination of predictive modeling and manual credit assessments, minimizing the latter part as the former increases in accuracy.
This will contribute to making the liwwa model easier to replicate in other markets and, given the vast demand across the MENA region, we are targeting to roll out to other MENA markets.
We are still focused on our base of operations in Jordan, and the country will always be an important market to us.
P2P-Banking thanks Ahmed Moor for the interview.