How do you grow a middle class across the African continent?
The answer should be simple: support entrepreneurship that multiplies the available capital in the economy accessible to ordinary working people. That’s what worked in the West, and more recently in the Pacific Rim and even in the People’s Republic of China.
Emerging from half a millennium of colonialist exploitation, free African nations are scrambling to grow both individually and collectively. One example is the creation of the African Continental Free Trade Area, which went into full effect in 2021. The newly announced agreement to create a multi-billion-dollar African Energy Bank is another.
But finding capital to start and expand local proprietor-operated businesses remains a challenge. Seven years ago, Tony Elumelu Foundation CEO Wiebe Boer lauded the recent growth of African entrepreneurship, but added a major caveat: “While entrepreneurship is growing rapidly in Africa,” he said, “entrepreneurs continue to face … a lack of access to funding, support services, skills training and infrastructure, as well as administrative barriers.”
Then, at the 2017 Innovation Prize for Africa event, African Innovation Foundation founder Jean-Claude Bastos de Morais stated that the banking sector’s risk adversity, “literally kills the ability to do business for small companies and startups.” Young African innovators, he added, “don’t believe in the tomorrow, they want it now.”
Three years later, the 2020 African Youth Survey commissioned by the Ichikowitz Foundation reported that 75% of young Africans who responded – across 14 countries -- wanted to open a business within five years, many in retail, technology, and agriculture. Most sought a business or social enterprise that could benefit those living in their communities. And most saw encouraging entrepreneurship as the most important role for African leaders.
The bar for opening a business across much of Africa is relatively low. Indeed, half the young would-be entrepreneurs surveyed said they only needed $100 in capital to invest in their dreams. But even that small amount is often difficult to obtain. In addition, as Bohr pointed out, African entrepreneurs face significant obstacles to getting started on a pathway to success.
With all this in mind, as a result of years of working in African finance, Finclusion founder Timothy Nuy set out with long-time partner Tonderai Mutesva to start a digital consumer neobank that provides essential financial services and can operate across the African continent. They structured their businesses to overcome two significant obstacles: Africa’s distribution gap and creating functional credit risk profiles for a population with very limited financial records.
Finclusion’s socially conscious business model bypasses traditional banking and financial infrastructure constraints by using supervised machine learning and artificial intelligence to serve millions of unbanked African entrepreneurs.
Finclusion’s platform begins with small installment loans that customers with an income can easily repay and thus build credit positive credit portfolios that can leverage growth. The goal is to create value for employers, employees, and customers while closing the credit gap that persists across Africa.
That model relies on these key observations. First, hardly anyone in Africa needs a transactional account; what they need from a bank is credit. Second, build a customer base of people with an income to rely on to make installment payments. Third, nano-lending is a predatory system that attracts the wrong kind of customers.
Nuy acknowledges that, after setting out to create a credit scoring system for potential clients, he realized that Africa’s network of micro and small banks was far more offline than he had expected. As piecing together credit portfolios proved impractical, Finclusion set out to work with employers to deduct installment payments from employee pay to augment its initial credit scoring.
Even in South Africa, nearly a quarter of the population is “unbanked.” Recognizing that fintech can serve unbanked clients who have mobile phones (not just smartphones), Finclusion has built an eight-pronged product portfolio that encompasses nearly every need for a small to medium-sized business.
Currently, Finclusion operates through multiple brands that it envisions integrating over time.
SmartAdvance delivers innovative and straightforward financial products, including personal loans and insurance, to enable and empower employers, employees, and consumers. It currently services leading African brands in the fast-moving consumer goods, medical services, and retail sectors.
Happy Pay is Africa’s leading buy now pay later platform that empowers consumers with a zero-interest financial solution and simple payments. Happy Pay offsets its transaction impact and encourages conscious consumerism through its reforesting initiative, Happy World.
TrustGro is another lender that focuses on financial education and small and medium-sized enterprises in Kenya and Tanzania. NiftyPay provides inclusive financial services in sub-Saharan Africa using a one-click, buy now pay later subscription and credit omni-channel platform.
NiftyCredit offers personalized credit through an online portal using innovative technology based on positive payment behavior. NiftyCover provides insurance products and employee benefit solutions for individuals and employers, including funeral cover, commuter cover, credit life, and group medical insurance.
Debt Helper offers personalized debt management services that include assessing a client’s financial situation, renegotiating credit agreements, and investigating reckless lending to help people get ahead of their debt.
Fractal Labs uses artificial intelligence to unlock insights for strategic development within an organization by converting data into measurable and scalable financial and risk tools to improve efficiency, reduce operational costs, and overcome regulatory, financial, and fraud challenges.
This multifaceted approach has won significant financial backing, notably a $20 million capital infusion to back debt and equity funding via various prominent investors on top of a $20 million funding round from Lendable that was announced last September.
This capital infusion will accelerate Finclusion’s expansion into Mozambique and Uganda and grow existing operations across Eswatini, Kenya, South Africa, and Tanzania. The capital will also support product expansion across the buy now pay later and wage streaming offerings.
Nuy envisions building a billion-dollar loan book over the next five years by growing its customer base from the current 20,000 to a million small borrowers whose average loan is under $1,000. Initial loans average about $200, and half the borrowers are women entrepreneurs.
Finclusion recently bolstered its credentials by naming well-known and much celebrated African businesswoman Matsi Modise as Chairwoman. Modise, who has been on a mission to contribute to Africa’s skills revolution, says she accepted this opportunity “because Africans need to create and tell their success story."
"Financial and digital inclusion is the cornerstone of Africa’s next generation of growth,” she added, and Finclusion provides “an opportunity to empower Africans to be more included in the economy, learn better financial management, and be able to better themselves.”
Nuy, too, is convinced that Africa – the last frontier - will take off as people gain access to entrepreneur-friendly credit. He hopes his firm can be a pillar in building up and driving economic growth across the continent. Empowering an army of young Africans with the twin visions of entrepreneurship and socially conscious investment seems an excellent way to make this vision tomorrow’s reality.
Duggan Flanakin is a Director of Policy at the Committee for a Constructive Tomorrow (CFACT). The views expressed are his own.