Mobile-based lenders in EAC attract $202m in lean 2017

Fundraisers include M-Kopa, Angaza, Tala, Timiza, M-Shwari and KCB’s collaboration with Safaricom.

Mobile money platform Jumo. The East African region recorded more than $202.1 million last year in investments FinTech businesses with mobile-based lenders. PHOTO | CYRIL NDEGEYA | NATION 

IN SUMMARY

  • The region recorded more than $202.1 million last year in investments in financial technology (FinTech) businesses with mobile-based lenders.
  • Tanzania recorded a significant jump last year in terms of deal value for financial management while Ethiopia offered promising opportunities owing to approximately 40 per cent of its population being within the millennial bracket.
  • Kenyan FinTechs led the region in terms of number of transacted deals and total value invested.

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The East African region recorded more than $202.1 million last year in investments in financial technology (FinTech) businesses with mobile-based lenders M-Kopa, Tala and Angaza rated among lead fundraisers.

However, this was a 33 per cent drop from the previous year after and having recorded a 65 per cent rise in the five years to 2016. This drop is being viewed in the light of uncertainty occasioned by regulatory challenges and a slowdown of debt financing from local banks.

According to the “Investment opportunities in FinTech in East Africa” report by the East Africa Venture Capital Association (EAVCA), Intellecap, Financial Sector Deepening-Africa and FMO, the Dutch development finance institution, investors continue to perceive the region’s FinTech space with interest, even as global investments in the sector are showing a downward trend.

Millennial population

“Lending FinTechs in the region have seen increased interest by funders in the past three years, raising about $390 million. In order for FinTechs to grow, they require a good balance of equity and debt financing. However, access to debt financing locally has been a challenge,” the reports says.

Intellecap head of financial services consulting Himanshu Bansal said that the region represents one of the mainstream FinTech markets in the world making it a prime investment especially for funders.

“Our research identified a youthful demography, including a rapidly growing millennial segment, infrastructural and technology improvements, and accommodative regulation, as some of the contributing influencers of the growth of FinTech in East Africa,” Mr Bansal said.

Across the four financial segments surveyed — lending, savings and payments, technology and financial management — Kenyan FinTechs led the region in terms of number of transacted deals and total value invested.

Tanzania recorded a significant jump last year in terms of deal value for financial management while Ethiopia offered promising opportunities owing to approximately 40 per cent of its population being within the millennial bracket.

“The region’s millennial population, aged between 18 and 35 years, a mobile penetration of 62 per cent as at 2016 and high adoption of basic technology such as USSD, have driven mobile wallets to unprecedented success in the mass market segments resulting in positive performance,” Mr Bansal said.

Debt facilitation

Lending FinTech, the segment involved in peer-to-peer (P2P) or business to consumer (B2C) debt facilitation, drew the largest funding at $440 million from investors in the past seven years, and represented 70 per cent of the region’s total FinTech sector fundraising.

In addition, savings and payments FinTech companies represented the fastest growing segment in FinTech over the past seven years, with investment values recorded up 140 per cent. Others with high investor interest include technology enablers and financial enterprises.

EAVCA executive director Eva Warigia said that the increased appetite for FinTech-enabled solutions can be attributed to gaps in traditional banking and financial services.

“Where access to credit is constrained with the stringent and often time consuming risk measures adopted by commercial lenders — particularly following the cap of interest rates in 2016 in Kenya — customers are looking to alternative platforms that cut through the documentation and profilin,” Ms Warigia said.

Seed funding was the most preferred form of fundraising for FinTech businesses which are often in the early stage investing phase.

Debt funding was also noted to be growing as a medium for fundraising as the sector continues to attract participation by institutional investors.

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