Micro, small and medium-sized enterprises (MSMEs) across Africa make up the bulk — over 90% — of businesses in the continent but are still marginalized in accessing credit from formal institutions because of the nature of their operations; for instance, many often lack the kind of collateral that is acceptable by banks.
To bridge the gap, Uganda-based fintech Numida, has opted to focus its digital lending business on small enterprises as part of its strategy for driving financial inclusion in emerging markets.
Spurred by an increase in demand for its services, Numida is currently eyeing growth opportunities beyond Uganda saying that it has a proven business model that can be adopted across the continent to unlock the potential of MSMEs.
The growth plans come against the backdrop of $12.3 million pre-series A equity-debt funding in a round led by Serena Ventures with participation from Breega, 4Di Capital, Launch Africa, Soma Capital, and Y Combinator, VCs that are all making their first investment in Uganda.
Existing strategic investor MFS Africa also made a follow-on investment, while Lendable Asset Management extended a $5 million debt to the startup.
“I’m most excited about continuing to build and provide financial products for these micro and small business owners who have been forgotten by the traditional financial services industry even though they are hardworking and have viable businesses. There are so many of these businesses across the continent, we really do believe that we’ve proven a model in Uganda that can be Pan-African and unlock the potential of these businesses to growth and achieve great things,” Numida CEO, Mina Shahid, who co-founded the startup in 2017 with Catherine Denis and Ben Best, told ProWellTech.
Numida co-founders (LR) Catherine Denis, Ben Bes, and Mina Shahid. Image Credit: Numida
Ethical lending
Numida plans to extend loans to an additional 10,000 businesses, to hit its 40,000 target, within the next 18 months, a goal that will be brought closer by its entry into two new African markets (selected from Ghana, Nigeria, Egypt, or Kenya).
Businesses on its portfolio receive loans of between $100 to $5,000, an amount that is payable after one month and attracts interest rates of between 10% and 16%.
“We do risk-based pricing but on average, the interest rate is about 11.5%,” Shahid said.
For credit consideration, Numida, which is the first startup in the East African country to get into YC (W22), looks at various aspects of businesses, including the sector and cash flow. Repeat clients in good standing get their loans approved instantly, but new applicants, and repeat businesses seeking larger facilities, must wait for up to 24 hours to have the loans approved.
The startup uses its own credit scoring model, which Shahid says, is built off the loans it has extended to customers and business profiles. He added that they operate differently from most digital lenders who usually scrape data from clients’ phone books and social media accounts as conditions for lending – many of these lenders reach out to the borrowers’ contacts with debt-shaming messaging in cases of default.
“When we started building this business, we saw that a lot of people were getting taken advantage of because they didn’t really understand the user terms because most people don’t actually read these privacy policies or user agreements to understand what they were giving up. And so, we wanted to be very conscious about 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 the one provided by the customer on the app, so we don’t snoop or scrape any data…We have a bunch of historical data that helps determine whether or not the information we’re collecting is relatively in the right ballpark”.
Since raising its seed funding last year, Numida has grown over 7.5 times propelled by the soaring demand for quick loans. The startup has to date issued $20 million in working capital to micro and small businesses, having grown from issuing $250,000 a month to $2 million.
The value of loans is set to grow as the startup continues to receive debt backing from institutions such as Lendable. Shahid said they hope to, in the interim, continue to remodel their products for even more affordability.
“We continue to improve our assessment of risk and our understanding of risk so that we can build a healthy portfolio that can allow us the room to reduce our prices while continuing to provide unsecured working capital loan products to these businesses,” he said.