As One Finance Becomes First Fintech to Receive a Credit Rating, Here’s What it Means for the Credit Company

One Finance, the Nigerian company behind the PayLater service has secured a “BB” credit rating from Global Credit Rating. This is the first credit rating for any African fintech company.

Some exciting news for us – being the first in Nigeria to secure a global credit rating is a strong indicator that your financial partner is in good shape.🏋🏾‍♂️

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— Carbon (@get_carbon) December 11, 2018

A credit rating is a risk management tool that’s used to determine the creditworthiness of a company, city or country that issues debt. Using several metrics, a credit rating explains how likely a debt will be repaid.

Now credit ratings are not investment recommendations. They are just for informational purposes. Ratings are divided into two categories: investment and speculative grades.

One Finance’s BB rating is speculative and signifies that the company has a lot of prospects, but for now faces slight uncertainties.

Nevertheless, the news comes as a huge boost for the company behind the highly popular Paylater lending service. Since launching the service two years ago, Paylater now has over one million users and disburses around 1,500 loans per day.

What Does the Rating Mean for the Company?

According to the rating agency, One Finance’s BB rating signifies a stable outlook. It arrived at this following a rigorous and testing process that analyzed the company’s finances and operational risks.

And this offers a lot of leverage for the startup in a number of ways.

Nigeria fintech Paylater gets credit rating ahead CBN regs  Quartz Fintech companies in #Africa are increasingly playing in spaces dominated by traditional financial institutions. In a continental first, One Fin… https://t.co/rLgCMvbTnZ via @theafricamentor #tech #entrepreneur pic.twitter.com/E4aVkbJaYK

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First, it offers a benchmark that allows investors to gauge the health of the company. This could even help the company engage in more impressive financing rounds, similar to the sort we only hear or read about internationally.

We want to look at pockets of funding in Nigeria and it’s easier if you have a credit rating

Second, the rating also gives significant recognition to Paylater’s own measure of assessing user’s credit worthiness. Since it launched, the service has relied on its own algorithms to make recommendations about what the limit of a user’s borrowing should be. The BB rating shows that this system is quite effective.

Third the credit rating offers a new measure for regulatory agencies to understand fintechs better. The BB rating shows that everything about One Finance’s operations is great, but the only uncertainty stems from regulators.

And Nigerian regulatory bodies have constantly affirmed their commitments to regulate fintechs to ensure their innovations are more industry compliant and safe for customers. But there’s been no acceptable measure so far. In fact, the recent CBN draft for payments companies only restates this confusion.

However, the new credit rating and the methodologies used could provide a new way for regulators to observe fintech growth and risks.

And One Finance is hoping that this happens. Chijioke Dozie says the credit rating allows his firms to be “held to the same levels of transparency and scrutiny as other leading financial institutions in Nigeria.”