Micro, small and medium-sized enterprises (MSMEs) across Africa account for the bulk – over 90% – of businesses on the continent, but are still marginalized in access credit formal institutions because of the nature of their operations; for example, many often do not have the type of collateral acceptable to banks.
To bridge the gap, Uganda-based fintech Numidachose to focus its digital lending business on small businesses as part of its strategy to drive financial inclusion in emerging markets.
Spurred by an increase in demand for its services, Numida is currently eyeing growth opportunities beyond Uganda, saying it has a proven business model that can be adopted across the continent to unlock the potential of MSME.
The growth plans come amid a $12.3 million pre-Series A equity debt financing in a round led by Serena Ventures with participation from Breega, 4Di Capital, Launch Africa, Soma Capital and Y Combinator, VCs all making their first investments in Uganda.
Existing strategic investor MFS Africa also made a follow-on investment, while Lendable Asset Management provided $5 million in debt to the startup.
“I’m very excited to continue creating and delivering financial products to those micro and small business owners who have been overlooked by the traditional financial services industry, even though they work hard and have viable businesses. . There are so many of these companies across the continent, we truly believe we have proven a model in Uganda that can be pan-African and unlock the growth potential of these companies and achieve great things,” said Numida CEO, Mina Chahidwho co-founded the startup in 2017 with Catherine Dennis and Ben Bestsaid TechCrunch.
Numida plans to lend to an additional 10,000 businesses, reaching its target of 40,000, within the next 18 months, a target that will be brought closer by entering two new African markets (chosen in Ghana, Nigeria, Egypt or in Kenya).
Companies in its portfolio receive loans between $100 and $5,000, an amount that is payable after one month and attracts interest rates between 10% and 16%.
“We apply risk-based pricing, but on average the interest rate is around 11.5%,” Shahid said.
For the credit review, Numida, which is the first startup from the East African country to enter YC (W22), reviews various aspects of businesses including sector and cash flow. Regular customers in good standing get their loans approved instantly, but new applicants and regular businesses looking for larger facilities have to wait up to 24 hours for loans to be approved.
The startup uses its own credit scoring model, which Shahid says is based on loans it has made to customers and business profiles. He added that they operate differently from most digital lenders who typically grab data from customers’ phone books and social media accounts as loan terms – many of these lenders contact borrower contacts with shameful messages in case of default.
“When we started building this business, we found that a lot of people were taken advantage of because they didn’t really understand the terms of service, because most people don’t actually read those privacy policies or agreements. use to understand what they were giving the top. And so, we wanted to be very aware of our approach, and we only ask for information that helps us determine if it is a business and if the person applying for a loan is the owner of the business,” Shahid said.
“The information we use is that provided by the customer on the app, so we don’t spy or scrape any data…We have a bunch of historical data that helps determine whether or not the information we collect are relatively in the right ballpark”.
Since raising its seed funding last year, Numida has grown 7.5 times, propelled by growing demand for quick loans. The startup has to date issued $20 million in working capital for micro and small businesses, growing from $250,000 per month to $2 million.
The value of the loans is expected to increase as the startup continues to receive debt support from institutions such as Lendable. Shahid said they hope, in the meantime, to continue redesigning their products to be even more affordable.
“We continue to improve our risk assessment and understanding of risk so that we can build a healthy portfolio that allows us to lower our prices while continuing to provide unsecured working capital lending products to these businesses,” said he declared.