Joseph Iruafemi is the Chief Executive Officer of Ayuba Finance (Ayubafi.com), a crypto-lending business which is on a mission to redefine the concept of loans with digital currency innovations. The entrepreneur discusses the hype around cryptocurrencies, its prospects and plans to rejuvenate African economy, among other issues. Excerpts:
With many businesses springing up as a result of the boom in the value of digital currencies, what’s the selling point for your business and why should people trust you with their money?
Our crypto lending service (Ayubafi.com) empowers our customers to maximise their profit from their coin. I will provide two examples to make this clear. First, you bought Bitcoin in December at about $30,000. Today, in April, it is around $50,000 and you need cash. You really could liquidate your crypto at today’s current price and take a profit. You take a profit but you have lost your good position for potential higher profit when the coin climbs to a higher price.
Rather than sell, take a profit and lose your position, you could take a loan from us against your Bitcoin. You could take a one to six-month loan to meet your cash obligations. We require that you pay the interest monthly and repay the principal at the end of the loan tenure. By the end of the loan repayment and tenure, we send your Bitcoin back to you and you can continue the ride to a potential greater Bitcoin price.
The second example is that you bought Bitcoin at $60,000 some months ago. Today, you are in dire need of cash but the price is at a value lower than what you paid for it. You could sell your coin at the current market price and take a loss, or you could borrow from us, repay the loan and get your Bitcoin back. This way, you can get to wait for a much higher value while you would have met your cash obligation without losing your Bitcoin.
In the two examples, you’d see that our service will help our customers to maximise what they make from their cryptocurrency.
Interesting. Do you accept all forms of cryptocurrencies as collateral on your platform?
While there are so many coins out there, we currently accept Bitcoin, Dash, ZCash, Litecoin and Bitcoin Cash as collateral. We are looking at adding more cryptocurrencies as collateral in the coming months. We are on a mission to lend out $1bn in the next 3 years and expand into other countries in Africa. We are here for the long haul, to deliver value to our customers, employees and investors.
Using cryptos as collateral for loans appears novel. Are digital currencies now more valuable than the common landed properties?
Cryptocurrencies may not necessarily be more valuable than landed properties but they possess some qualities that make them better suited as collateral compared to landed properties or even gold.
The European Central Bank developed a framework for deciding what makes a good collateral. The liquidity and safety of a collateral are the qualities that make it a good collateral. An asset is seen as liquid if it has high market liquidity; is easy to value; is easy to transfer; has low deadweight cost; and is easy to verify. With this yardstick of judging what makes an asset liquid, Bitcoin (cryptocurrency) comes out on top of landed property, gold and government bonds.
Although for safety, cryptocurrency does not have low volatility. But Bitcoin is better in anti-cyclicality compared to landed properties and gold. While it is at par with landed property and gold as a store of value. Overall, by the European Central Bank framework, cryptocurrency comes out as better collateral ahead of landed properties, gold and government bonds.
You mentioned low volatility and cryptocurrencies are not particularly low in volatility. How do you manage the volatility of cryptocurrencies when you give out loans?
We wish cryptocurrencies to have low volatility. At the moment that is not so but we believe over time that the volatility of cryptocurrencies will reduce, especially for the mature projects. However, to compensate for the fluctuation in the price, the loans we give out are ‘over-collateralized’ by 50 percent. This means, if a customer wants to take a loan of N100,000 from us, s/he has to deposit crypto collateral worth N200,000 with us. This provides a cushioning effect enough to accommodate for fluctuation.
As per depositing crypto collateral with you, it means you have to receive and hold your customer’s cryptocurrency until they have repaid their loan. How do you safeguard the crypto you are holding as collateral?
Our service is built with security in mind. Our cryptocurrencies are held with EU licensed and regulated institutional digital asset custody providers. They provide us with a proven security framework and infrastructure to store the cryptocurrencies. There is also $100M in insurance protections on the deposits.
There is a significant percentage of the Nigerian populace still ignorant about the runnings of cryptocurrency. How do you intend solving this as a more inclined people would benefit your business more?
We will be holding regular Ask Me Anything (AMA) online sessions to enlighten people on blockchain and cryptocurrency. The kick-off of our AMA will be announced on our social media channels soon.
There are those who say that because cryptocurrency is yet to be backed by any internationally recognised financial institution, it may be its doom. Are you not afraid all these could come down crashing?
Global payment giants, Visa have incorporated crypto into their operations and the crypto market currently costs around $1.8 trillion. Paypal, among others, are also gearing to do the same.
So, we are not afraid that all these could come down crashing. Interaction is money. Cryptocurrencies derive their value and relevance from the network effects of people trading and holding them. As long as the cryptocurrencies and blockchain projects deliver what they promise to deliver, people will continue to make use of them.
Apart from loans, what other financial products do you offer or are you looking to offer through Ayubafi?
We are looking at providing crypto insurance and crypto will service to our (prospective) customers. Our crypto insurance service will protect our customers from loss and theft. The crypto will serve as an extension of the crypto insurance service. It will ensure that your beneficiary gets your crypto asset in the event that something happens to you.
For an entrepreneur with years of experience and achievements, how did your background and academic exploits prepare you for this life?
I have been in tech for 12 years. 7 years of that I have been in Fintech. I have deployed a product I built, Kobotrack, at Nigerian bank, Sterling Bank. I have also built other tech products. My movie aggregation service, NowShowing, was number 1 third-party movie aggregation engine in the country with 14kplus links on Google search and over 60k monthly active users.
Beyond this, I was once the director of the Lagos Chapter of Founder Institute. I possess a degree in Mechanical Engineering from the University of Lagos and graduated from the Aspiring Entrepreneurship Programme of Fate Foundation. I also graduated from the Certificate in Entrepreneurship Management from Pan Atlantic University. These programmes have given me a value for problem solving, value creation and orientation for excellence in whatever I do.
What is the most significant lesion you have learnt so far in the entrepreneurship journey?
Make a product/service that people want.
Fintech is experiencing its biggest investment boom at the moment and many more youths are getting driven to enter the industry. What piece of advice would you give aspiring entrepreneurs?
Aspiring entrepreneurs should not get caught up in the hype. They should always be looking to create value and deliver exceptional service to their customers regardless of the sector they are in. If Fintech is not your area of strength, you do not have to do Fintech to be successful.