Micro, small and medium-sized enterprises (SMEs) across Africa make up the bulk — over 90% — of the continent’s businesses, but are still marginalized in access to credit of formal institutions due to the nature of their activities; for example, many often lack the type of collateral accepted by banks.
To bridge the gap, Uganda-based fintech Numidahas chosen to focus its digital lending business on small businesses as part of its strategy to drive financial inclusion in emerging markets.
Spurred on by an increase in demand for its services, Numida is currently looking at growth opportunities outside of Uganda and says it has a proven business model that can be applied across the continent to unlock the potential of SMEs.
The growth plans are set against the backdrop of $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-up investment, while Lendable Asset Management provided $5 million in debt to the startup.
“I am most excited about continuing to build and deliver financial products to these micro and small business owners who have been forgotten by traditional financial services, even though they are hardworking and have viable businesses. There are so many of these companies across the continent, we truly believe that in Uganda we have proven a model that can be pan-African and unlock the potential of these companies to grow and achieve great things,” Numida CEO, Mina Shahidwho co-founded the startup in 2017 with Catherine Dennis and Ben Besttold londonbusinessblog.com.
Numida plans to extend loans to a further 10,000 companies, to reach the target of 40,000 within the next 18 months, a target that will be brought closer by its entry into two new African markets (selected from Ghana, Nigeria, Egypt or Kenya).
Companies in her portfolio receive loans between $100 and $5,000, an amount to be paid after a month and yield interest rates between 10% and 16%.
“We have risk-based pricing, but on average the interest rate is about 11.5%,” Shahid said.
For credit considerations, Numida, the East African country’s first startup to step into YC (W22), looks at various aspects of businesses, including industry and cash flow. Returning customers in good standing get their loans approved immediately, but new applicants and returning businesses seeking larger facilities must wait up to 24 hours for the loans to be approved.
The startup uses its own credit scoring model, which Shahid says is based on the loans it has made to customers and company profiles. He added that they operate differently from most digital lenders, which usually scrape data from customer phone books and social media accounts as terms of lending — many of these lenders contact the borrowers’ contacts with debt-provoking messages. in case of default.
“The information we use is the information provided by the customer in the app, so we don’t sniff or scrape data… We have a lot of historical data that helps determine whether or not the information we collect is relative in the right margin”.
Since raising seed funding last year, Numida has grown more than 7.5 times, driven by rising demand for quick loans. The startup has spent $20 million in working capital to micro and small businesses to date, growing from $250,000 per month to $2 million.
The value of loans is expected to grow as the startup continues to receive debt from institutions such as Lendable. Shahid said they hope to keep renovating their products in the meantime for even more affordability.
“We continue to improve our risk assessment and understanding of risk so that we can build a healthy portfolio that gives us room to lower our prices while continuing to provide unsecured working capital loans to these companies,” he said.