Funding for Fintech Start-ups in Africa Increased by 49% to US$160m in 2020

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Friday, September 17, 2021 / 10:27 AM / by FBNQuest Research / Header Image Credit: iStock


Funding for fintech start-ups in Africa increased by 49% to USD160m in 2020, and Nigeria's share was USD89m. The figures, supplied by a provider of news and analysis of the industry, are very small in a global context but rising at a healthy rate (to 0.4% of the global total). If we take all start-ups, then Kenya overtook Nigeria last year with a 25% share of all deals (vs 23%) according to a rival provider of analysis. 

The two countries are vying with each other for the position at the top of the table. In today's note we share a story from Kenya with which our readers in Nigeria may not be familiar. 4G Capital, a fintech operation launched in 2013, made a presentation yesterday as part of The Africa Debate, a virtual event organized by the UK-based InvestAfrica. 

The company's main activity is to provide working capital finance to MSMEs. It has developed expertise in growing businesses and does not offer consumer finance. It says that one million families have benefited from its loans totalling USD170m to 182,000 businesses. Kenya is its principal market and it also operates in Uganda.


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The company has trained relationship managers based in its 90 offices. These managers carry out due diligence on would-be borrowers and then provide financial training for those who have passed their initial tests. This includes budgeting and managing expenses. The training continues after the loans have been disbursed.


4G does not refinance loans. Customers repay in full and then can borrow again. Repeat loans are approved and disbursed via mobile. The combination of the due diligence and the training explains the repayment rate of 95%, which has barely moved during COVID-19.


4G scores relatively well for data protection thanks to the strong face-to-face element in its systems.


The company's aim is to improve its products in its existing markets before expanding into West Africa and elsewhere. 

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The only person on the presentation from outside the company was a representative of Citi Social Finance, which 4G described as its "strategic finance partner". In October 2020 Citi provided a KES285m (USD2.9m) term loan within a credit facility that brings it together with the Ford Foundation and the Development Finance Corporation (a US federal agency). The focus of the facility is inventory financing, specifically a product that allows customers to buy stocks on credit rather than with cash on delivery.


4G Capital has played a part in boosting the financial inclusion rate in Kenya, which has grown strongly from 27% in 2006 to 76% in 2016, and 83% in 2019. By far the largest driver of this increase has been Safaricom's M'Pesa, which has 26.8 million active users (representing 49% of the total population). The title of the presentation, if somewhat wordy, was Transformative financial inclusion in the Silicon savanna.


Our note today is not an advertorial. It is based upon one company's presentation but is not written uncritically. 4G Capital has been a successful journey to extend finance to unbanked MSMEs in East Africa and is a narrative to share for those unfamiliar with it. Doubtless, there are similar stories elsewhere.


We welcome innovation in technology yet find in this case that it is not all-conquering. A poll held during the presentation asked respondents what in the last resort would enable the provider to reach financially excluded customers: 44% favoured face-to-face contact, 34% financial education and 22% digital self-service. This is a ringing endorsement of the hybrid product on offer.

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