Lecture series
Unit economics of a lending business
A lender's results are the sum of what each loan earns and costs. This course explains how to measure that, loan by loan: the yield actually earned, the cost of the money lent, credit losses, the costs of acquiring, serving and collecting from borrowers, the value of borrowers who return, and how the unit adds up to a business that covers its capital. Seven lessons.
7 of 7 lessons published. Lesson 1 is free to read.
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- 01What unit economics means for a lender: what a loan earns and what it costsA lending business makes money or loses it one loan at a time. Unit economics asks whether what a typical loan earns covers what it costs: the money lent, the loans that are not repaid and the work of making and collecting them. This lesson sets out the basic equation, the ratios used to measure each part, why loan size changes the answer, and a worked example that the rest of the course builds on.
- 02Revenue: interest, fees and the yield actually earnedThe first term of the lending equation is income from loans. This lesson explains what it includes, why the rate written in a loan contract, the effective annual rate and the yield a lender actually earns are three different numbers, how flat rates and fees widen the gap, and how the yield gap shows how much of the expected revenue is really collected.
- 03The cost of funds and the margin over itEvery loan is made with money that has a cost: deposits, borrowing or the lender's own capital. This lesson defines the cost of funds and the two ratios used to measure it, explains why the source of funding matters, shows how the margin over the cost of funds is measured and how it moves when rates change, and sets out the adjustments analysts make for subsidised money and inflation.
- 04Credit losses: expected loss per loan and per cohortThe third term of the lending equation is the loans that are not repaid. This lesson explains how losses enter the accounts through provisions and write-offs, how expected loss is built for one loan from three numbers, how losses are measured across the book, why loans made in the same period should be followed as a cohort, and how recoveries and the cost of collecting set the loss when a borrower defaults.
- 05Acquiring and serving a borrower: acquisition, operating and collection costsFor most microlenders, operating cost is the largest cost. This lesson explains what it contains, and splits it along the life of a loan: the cost of acquiring a borrower, including the applicants who never borrow; the cost of serving a loan and the measures of productivity; and the cost of collecting from borrowers who fall behind. A worked example rebuilds the operating cost used in lesson 1 and shows why costs arrive before revenue.
- 06Repeat borrowers and the value of a customer over timeA borrower who comes back costs less to win and is better known than a new one. This lesson explains why lenders offer repeat and larger loans, how retention is measured, how the value of a borrower over several loans is calculated from the margin per loan, the retention rate and a discount rate, and why a first loan that loses money may or may not be worth making.
- 07From the loan to the business: scale, capital and the ratios to watchThe earlier lessons measured one loan. This lesson adds the loans up to the business: how the parts become a return on the loan book, why fixed costs make scale matter, why a lender holds capital and what the minimum is for banks, how the return on equity depends on leverage, how self-sufficiency is measured, and the short list of ratios to watch.
Quiz and certificate 10 questions; those on lesson 1 are free to try. Read every published lesson and score 80% or more for a certificate of completion.
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