On Line: Shivani Siroya at microlender InVenture Capital’s office in Santa Monica.

On Line: Shivani Siroya at microlender InVenture Capital’s office in Santa Monica. Photo by Ringo Chiu.

Despite microfinance’s reputation as an innovative method for lifting people out of poverty, the scheme hasn’t evolved much since it was invented in the 1970s.

But Santa Monica’s InVenture Capital Corp., which last month landed a $10 million Series A round from some big-name investors, has industry watchers excited. The reason: Its model could revolutionize the industry.

The world of microfinance is characterized by individual loan agents trekking from village to village in developing countries looking for prospective borrowers. Loans are passed out in cash. In place of collateral, lenders issue loans to a group of debtors to reduce risk – if one person in the group defaults, it hurts everyone else’s credit, too.

Not only has that social pressure tactic drawn some criticism, but experts also bemoan the industry’s inefficiency. It’s hard to grow a microloan business by giving out tiny loans one at a time.

InVenture hopes to change all that through its Android app, Mkopo Rahisi, which means “easy loan” in Swahili. Since March 2014, the firm has issued more than 80,000 loans, totaling more than $4 million, to borrowers in Kenya and Tanzania. That figures out to about $50 a loan – which underscores the meaning of “micro.” So far, 88 percent of the loans have been fully repaid with many of the remainder only partly repaid or deferred.

The company has achieved that high loan volume with only 10 employees in Africa. The startup’s 15 other staffers work in Santa Monica.

InVenture can rapidly originate so many small loans because of the widespread adoption in its target countries of cellphones, which have effectively become wallets for many people. The currency they carry is called “m-pesa,” a form of tradable cellphone minutes used by 67 percent of Kenyan adults to buy goods and services.

Significantly, m-pesas create an electronic transaction trail that gives InVenture a record of the spending habits and income patterns of borrowers, who are Kenya and Tanzania’s poorest citizens.

African commerce

By connecting to users’ m-pesa accounts, as well as other nonfinancial data stored within their phones, InVenture claims its data-crunching app can weigh about 10,000 variables, infer credit worthiness and issue a loan to a borrower’s m-pesa account within about a minute.

“Through the mobile phone you not only get this rich transaction data: merchant payments, utilities, water payments, school fees,” said InVenture Chief Executive Shivani Siroya, “but we are also getting behavioral information: how they are moving throughout the day, social data, how they use their phone.”

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