Last Christmas, instead of flying directly home from Ghana, I made a pit stop in Boston. All year, I had been remotely participating in Harvard’s Alumni Accelerator program, LaunchLabX. In December, they held the mid-program pitch competition. I’ve done a lot of pitch competitions, but this one had a twist: The winner got to choose their own prize worth roughly $5,000.
We were told to think of something good, an experience that would be worth way more than $5,000; something that would really use the Harvard name and network. I think most people asked for executive coaches or money for a booth at a trade fair. I submitted my request. I wanted a sit down with Jack Dorsey who had just announced that he was going to spend 6 months of 2020 living in several African countries.
And then I won. And the fantastic team at the iLab scrambled to make my crazy prize request a reality. And then the Twitter board made it known that Jack couldn’t spend the U.S. election off-the-grid in Africa. And then the world fell apart.
As I watched our customers suffer through Ghana’s shut down and saw that Ghana’s version of the PPP was going to take quite some time, I thought that there was something better to do with that money. Harvard agreed. They stopped trying to make the meeting happen and instead sent OZÉ a check for $5,000.
We put out an application to our customers for a COVID-19 Relief Loan. It had rates much lower than a microfinance institution, was disbursed even while banks were closed, and had a grace period tied to the reopening of the economy. Nearly 1000 applications poured in.
We’ve always had a theory that OZÉ customers would make the best borrowers. They are making choices to grow their business. They are diligently recording their sales, expenses, payables, and receivables. They get daily business education and access to an on-demand business coach. We’ve also always had a theory that OZÉ can better assess these better borrowers. We can see their cash transactions in addition to bank or mobile money statements and we know how they interact with our app.
We’ve just had a hard time getting banks to start lending using our recommendations. I don’t blame them — bankers have a different risk appetite than tech founders. We knew that we would have to prove out our theory, and $5,000 would be a good start. We disbursed our first COVID Relief Loan on May 23rd.
Now, just over 6 months later, we’ve made 19 loans out of that $5,000. Every penny that comes in the door goes right back out. And despite running this program in the midst of economic uncertainty, every single borrower is paying us back. Out of those 19 borrowers, one has needed to change their payment plan. The other 18 have paid back in full or are currently paying back as scheduled. We are on track to realize a 43% ROI on that $5,000 this year.
Meeting Jack would have been a great experience. I would have learned a lot. Maybe I would have influenced his choice to come live in Ghana for a few months of his pan-African tour. But I wouldn’t have gotten this $5,000 into the hands of our customers and I would not now be so confident that our theories are true. OZÉ customers are better borrowers and OZÉ is better at assessing their creditworthiness. But of course, Jack, if you are out there, I’d still love to meet. It doesn’t cost anything to do a Zoom call.
If you are a banker looking to increase the returns on your MSME lending portfolio in 2021, send me an email at email@example.com.