The classic picture of a debt spiralling out of control is of someone completely swamped. Frank Mukahanana, the founder of QuidCycle, was a financial adviser who perceived another issue: people he knew on reasonable, middle incomes getting involved in a number of financial products over the years and ending up working for their money rather than the other way around.
“These are really intelligent people, clever people with good jobs,” Mukahanana says. “They ended up with a whole lot of products they didn’t understand.” The other thing people were doing was taking on a little debt – a bit of credit card here and there to finance something, a car loan there, and they were becoming accustomed to owing and making repayments. “What started off as an unnoticeable thing coming out of their account ended up taking up all of their monthly income and stopping them, for example, starting an investment.”
These people were working hard to stay still. Mukahanana’s training as a financial adviser allowed him to work out ways of helping – but as a small employee in a larger company, he was unable to make it happen at scale. He worked to raise capital and called on friends and family, too, starting up properly in 2013.
“We did a beta test and the feedback was phenomenal,” Mukahanana said. OK, so how does this offering from this risk-averse entrepreneur work? It takes advantage of the new world of finance that has been emerging over the past few years. Essentially, as our headline suggests,
it turns borrowers into investors over a period of time.
The company takes a three-step approach. First, where necessary, it helps people release their cash. “We find that one of the biggest expenditure items is servicing credit; if they didn’t have to do that they’d be able to do more with their money.” So the first step is to examine the client’s expenditure and refinance it at lower rates, consolidating it into a single payment agreed as manageable between QuidCycle and the client. There are safeguards, though. “A lot of the time, money for refinancing debts from other companies goes into the client’s current account and it might take a busy professional weeks before paying them off – meanwhile the kids’ bikes need repairing or whatever, and by the time it gets to paying the creditors off there isn’t enough.”
So QuidCycle pays the creditors direct and offers busy professionals a turnkey solution. “One of our clients is a medical doctor with two teenage kids at private schools – he can afford that but he had around £65K on credit cards. We refinanced and it’s gone down really quickly – our clients are people who’ve got their heads down.”
The other thing QuidCycle does is take the credit cards away to prevent people ending up with further debt. “It costs us money to call these credit-card companies but we think it’s the right thing to do.” The advisers work with the client and offer cash back as long as all payments are met. The debt goes down each year. The client also has to go through a minimum two-hour web seminar on financial hints and tips and make an appointment to consult a financial adviser.
Once the debt is paid and the financial education is complete, the client can start putting money back in – and the money is loaned to other new clients, paying higher rates than typical high street investments would achieve, but lent at lower rates than credit-card companies offer.
There are criteria for becoming a client and only a few are accepted. “We look at the way they’ve handled their credit over the last three to five years and that’s very telling; it’s not just a credit score,” Mukahanana says.
The scheme resembles a mutual account with a few extra bells and whistles – but Mukahanana is convinced it will help a great many people. Debts are cleared earlier than otherwise possible, and then the client has the option to save the money they’re accustomed to setting aside. There should be minimal impact – and a lot of better-off savers, in principle.