- Players: Simanga Dlamini (MD), Khomotso Disolwane (marketing director), Mohamed Makanda Rasivhetshela (CEO and founder),
- Company: Makanda Finance Solutions
- What they do: Micro-finance
- Launched: 2010
- Visit: makandafinance.co.za
One of the biggest myths surrounding start-ups is that you need a lot of funding and a refined idea to get a business off the ground. Mohamed Rasivhetshela, founder of Makanda Finance, is proof that even a sophisticated online micro-lender can be launched with R1 500, a notebook and a bicycle.
Rasivhetshela had been an entrepreneur since school, selling sweets and CDs to his classmates. He’d even grown his little side business, recruiting agents to sell on his behalf and giving them a cut at the end of each day.
By the time he started varsity, he was known as the mover and shaker of his family, and his brother had an idea for him. Township loan sharks (‘mashonisas’) typically charge 50% interest on short-term loans. There was a business opportunity for Rasivhetshela to offer a better service at lower rates.
Rasivhetshela jumped at the idea. There was just one problem: He had no capital. But he did have a friend who was willing to lend him the money as a business investment.
“I started small. I went to friends and neighbours and offered them small, short-term loans that they had to pay back to me with interest at the end of the month,” Rasivhetshela recalls, adding that he was so excited about the business idea he didn’t pay any attention to the potential risks.
“I was working within my network and I just trusted that everyone would pay me back,” he says. And they did. 95% of those first loans were repaid on time with interest, with only 5% defaulting, and collected shortly thereafter. “There was a business here. I just needed to make it work,” he says.
From the start Makanda Finance had a dual business model: Investors could invest as little as R50 into the business and receive interest at the end of each month, and borrowers could loan up to R300 at a 30% interest rate, due at the end of each month.
Rasivhetshela kept a careful notebook and fetched and delivered cash on his bicycle. “At the beginning it was all word-of-mouth,” he explains. “I was educating investors and making it as simple as possible for them to try the model out, which is why I started at R50. They could then invest more as they saw how the business worked and received their returns.”
It didn’t take long for the young entrepreneur to realise that there was a real opportunity here, and he needed to start formalising the business. “I had no interest in becoming a mashonisa,” he says.
“I had a friend who was a lawyer, and he helped me to set up formal processes and register as a credit provider with the National Credit Regulator. We’re also a member of MFSA — Micro Finance South Africa — and we’re regulated by the National Credit Act.” As a result, Makanda Finance’s interest rates are also much lower than when Rasivhetshela started out in 2010.
Starting small meant that he could build a sustainable business with strong foundations.
“For the first year and a half I operated out of a flat. Simanga Dlamini and Khomotso Disolwane joined me part time. I had already dropped out of varsity to concentrate on the business full time, but it couldn’t sustain all three of us yet.”
By 2012 Dlamini and Disolwane joined the business full time as partners, and by then Makanda Finance was operating an online platform, was registered with the NCR, and had a steady stream of investors and borrowers.
“The back-end was complicated, but the market offering was simple: Invest in us or borrow from us,” says Rasivhetshela. “We needed to start small so that our market could try us out, particularly the investors. We had to prove that we were here to stay, and that our returns could be trusted.”
To entice investors, Makanda Finance still offers investments from as little as R99 per month today, with the ability for investors to top up their accounts at any time. 14% monthly compound interest is offered, compared to 7% by banks.
A Simple Value Proposition
Ensuring they get paid is a critical element of the business. “That very first month was all trust and naivety,” says Rasivhetshela.
“As the business grew and clients became borrowers and investors who we didn’t know, systems and processes became increasingly important. We used our profits to fund a strong platform that’s capable of fast and accurate credit checks. Over the past seven years we’ve become very good at determining low risk from high risk clients.
“Ultimately, our investors are our most important assets, so ensuring they are paid on time is our top priority. We can’t afford to take risks that might jeopardise that.”
Makanda Finance currently has 4 500 clients, of which 300 are investors. “Khomotso’s key role is educating our market,” Rasivhetshela says. “Our growth is determined by our investors, and so finding and retaining investors is key to our future success. Our turnover is currently R1,2 million per month, and this will grow as more investors join the platform.”
There is no doubt that there is a huge market for micro-finance in South Africa, and Makanda Finance has found an innovative way to not only offer that finance, but provide a flexible investment platform for people who are often new to the investment market.
It’s taken a lot of focus, investment into creating a fully-automated online platform, and patience, but Rasivhetshela, Dlamini and Disolwane have created the foundation for an incredibly strong business going forward.
Consider two markets that could benefit each other (ie, investors who have cash, and people who require micro loans), and how you can become the conduit between them. Some of the most innovative businesses have been built on this model, including Airbnb and Uber.