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An Overview of African Alternative Lending

African alternative finance
Source: http://www.whitelabelcrowd.fund/p2p-lending-potential-africa/

The majority of the African population is underserved and unserved when it comes to banking services. Therefore, a new crop of fintech startups are thriving in Africa by developing innovative products to accommodate the needs of the community.

Accenture estimates that over one-third of mainstream financial services revenue is at risk due to disruption in the industry from fintech.

Africa: The Land of Opportunity

According to Disrupt Africa’s Finnovating for Africa Report, there has been a boom in fintech startups since 2015. About 301 startups were tracked, and the majority of them were set up in the last two years. They’ve collectively raised around $93 million since 2015.

The reason for this exuberance is smartphone adoption. South Africa and Kenya are the fastest growing smartphone markets in the world. As per 2015 research statistics, 88% of Africans didn’t have a bank account, but they did have smartphones. In 2015, 183 million people in Africa had a mobile wallet. That was 3 times the number of digital wallet users in the U.S. and expanding at 3 times the annual growth rate. If this trajectory continues, every African will have a mobile wallet by 2020. Numbers here clearly suggest that fintech startups have a huge opportunity staring at them.

Potential for Home Grown Peer-to-Peer Platforms

As per the Africa and Middle East Alternative Finance Benchmarking Report, Kenya and South Africa are leading the P2P business lending market in Africa. But a noteworthy point here is that 90% of online alternative lending originated from platforms headquartered outside of Africa.

African P2P lending
Source: http://www.whitelabelcrowd.fund/p2p-lending-potential-africa/

The third largest alt-lending model in Africa was P2P business lending, which experienced astronomical growth from a modest $2 million in 2014 to $14 million in 2015. In 2015, Kenya and South Africa were the market leaders, garnering $16.7 million and $15 million, respectively.

“(Source) The East Africa region has the largest market share of the African alternative finance market. In 2015, East Africa accounted for 41% of total African market share, while West Africa accounted for 24% and Southern Africa accounted for 19%.”

African alternative finance
Source: http://www.whitelabelcrowd.fund/p2p-lending-potential-africa/

Since the market is still in a nascent stage, there has been no regulatory policy for the alternative finance industry. But positive efforts have been made in recent times to develop a regulatory ecosystem that will help in developing this budding industry in the region.

The Alternative Lending Leaders in Africa

Leading alternative lenders in Africa include:

  • Aella Credit – Started in 2015 by Akin (Akinola) J, Aella Credit’s headquarters is in Mountain View, California. The firm provides instant credit solutions that eliminates the hassle of standard loan applications and enables employees to borrow at competitive and fair rates through their employers.  Company offices are located in the United States and Nigeria. They raised a paltry $150,000 as seed capital but have gone on to raise an additional $1 million. Aella Credit disbursed over $1 million in loans with a 0% default rate to about 1,100 borrowers in the course of its soft launch.
  • Branch – Branch was launched in 2015 by Daniel Jung, Matt Flannery, and Random Bares. They raised over $11 million in various funding rounds. Branch eliminates the challenges of getting a loan by using the data on borrowers’ phones to create a credit score. It encrypts the data, thus ensuring complete privacy. Branch is a for-profit socially-conscious company based in San Francisco and Nairobi.
Branch p2p lending Africa
Source: Branch
  • KiaKia – Founded in 2016 by Chiemeziem Anyadike, Olajide Abiola, and Olajide Abiola, KiaKia is headquartered in Abuja, Federal Capital Territory, Nigeria. Utilizing machine learning, big-data, predictive analytics, digital forensics, and social collateral as part of its proprietary algorithm for credit scoring and risk assessment, the company provides real-time access to consumer and SME capital to underbanked Africans. Loans offer interest as low as ₦10K – ₦200K at 0.80%, durations ranging from 7-30 days, and no collateral. It has managed to raise $50,000 in funding.
  • Microcred Group – Microcred was created in 2005 by Arnaud Ventura with the support of Positive Planet and a number of institutional investors. Its headquarters are in Paris, Ile-de-France, France. A leading digital finance player for financial inclusion in Africa & China, Microcred offers financial services to emerging client segments, particularly the unbanked with a focus on micro & SMEs. The company operates in Madagascar, Senegal, Nigeria, Ivory Coast, Mali, Zimbabwe, Burkina Faso, Tunisia, and China. The group has raised over € 99 million in various rounds of funding.
  • Musoni – Founded in 2009, Musoni is headquartered in Amsterdam. Musoni BV is a social enterprise that establishes best-practice microfinance institutions and uses technology to lower costs, reduce risk, and improve efficiency. In 2009, Musoni set up the first cashless Microfinance Institution (MFI) in the world using mobile payments for all transactions. Since then, Musoni Kenya has disbursed close to 50,000 loans to micro entrepreneurs with a total value of $12 million. In 2011, Musoni won the award for ‘most innovative use of technology’ at the Global Microfinance Achievement Awards in Geneva.
  • RainFin – RainFin was launched in 2012 by Hannes Van Der Merwe and Sean Emery. Headquartered in Somerset West, South Africa, RainFin was South Africa’s first lending marketplace. It pioneered a viable alternative for quality borrowers looking for access to finance and lenders looking for returns that are higher than fixed deposits or the stock market. It offers loans ranging from 6-24 months and at an APR starting from 10.25%.
  • FarmDrive – Founded in 2014 by Peris Nyaboe and Rita Kimani, FarmDrive is headquartered in Nairobi, Kenya. This firm is a social enterprise that connects unbanked and underserved smallholder farmers to credit, while helping financial institutions to cost effectively increase their agricultural loan portfolios.

Apart from the above-mentioned lenders, there are a few more who are trying to make their mark in the African market, such Merchant Capital, Lydia.co, and many more.

Conclusion

Africa is not a homogeneous market. It is imperative for alternative lending startups to understand the different cultural nuances so they can develop products that have utility. As the region continues its socioeconomic upliftment, more people will need access to financial services. This makes Africa an exciting market for alternative lending in years to come.

Author:

Written by Heena Dhir.

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Allen Taylor

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