How fintech firm achieves 95% average loan repayment rate

Give us a brief about 4G Capital.
We have spent much of that time working closely with our customers to build products that work for them and their business cycles. Currently, they have two main routes to market.

Our product combines access to instant unsecured working capital with customer and business training for informal sector entrepreneurs.

Our Kuza product meanwhile, partners with large multinational FMCG (Fast moving consumer goods)/ NGOs to provide their customers with automated retail credit, helping distributors and their retail customers sell more by ensuring stock levels are maintained due to cash flow constraints (a problem we identified in over 30 per cent of businesses we surveyed in joint research conducted with Financial Sector Deepening (FSD) Uganda earlier this year) following our success in Kenya, where we have provided over $78m (Shs290.8b) in loans to 80,000 Micro-Small and Medium Enterprises (MSMEs).

Where are you operating currently? Any expansion plans?
We currently have 92 branches across Kenya and Uganda (86 in Kenya and six in Uganda). While focusing on expanding our operations in Uganda, we are also looking to launch in Ghana and South Africa within the next 12 months.

We officially launched in Uganda in April 2019 and now have six markets with 42 employees. We have supported more than 2,500 Ugandan MSMEs, lending over Shs3b to date.

These encouraging early results have given us confidence to continue expanding in Uganda. We are looking to open another 30 branches in 2020 to help close the $5b (Shs18.6 trillion) MSME finance gap in Uganda.

Who funds 4G Capital?
4G Capital is funded through a combination of debt (for on-lending) and equity (for expansion and technology enhancement). Our funding comes from a combination of local currency bank facilities, institutional funds and experienced early stage funds operating across the continent.

We only work with investors who believe in our mission and value proposition to address the MSME finance gap, formalie the informal sector and stimulate economies.

As we grow in Uganda in 2020, we look to hire an additional 180 employees to support over 30,000 MSME. We shall be looking to local banks to access Ugandan shilling debt facilities.

What would you say gives your company a competitive edge?
Our unique ‘touch tech’ approach allows us to combine instant credit scoring, directly at a person’s business with close customer support and access to progressive business training modules. We also give these entrepreneurs both the ways and means to succeed.

Through this approach, we have developed an intimate understanding of the needs of the MSME sector in the markets we operate in, allowing us to deploy over 600,000 loans with collection rates of 95 per cent, far above the industry average.

We build our products specifically around our customer’s needs ensuring they have the flexibility needed to match a dynamic range of fast-moving business cycles. Our first loan is disbursed within four hours and every other loan after that is given within five minutes. Importantly, we do not refinance our customers.

This unique touch-tech approach of combining technology with human relationship managers increases our customer’s revenue by over 82 per cent within 12 months.

A core part of our value proposition is the close relationship with our customers and our ability to adapt our products around them at scale. We measure our success by whether our customers succeed!

What are the necessary criteria to qualify for the seed capital?
As mentioned, 4G Capital has two main channels through which a small business owner can become a customer of ours.

First, we embed small teams directly into high-density markets with many traders (Kalerwe, Nakawa, Mukono, Ggaba, Nateete, Gayaza). These teams spend most of their days talking to small businesses.

To become a customer, the small business must have been operating within that market for a minimum of six months, have a minimum stock value of Shs90,000, have a National ID card and a mobile money wallet registered in their name. It’s that simple!

For our partnership product, the customer needs to have been a customer of the distributor for a minimum of three months. From their order history, we can pre-validate a credit limit so that if you ever want extra stock, we can pay for it directly on your behalf with only two SMSs to our system. We keep our onboarding processes as paperless and light as possible and conduct 90 per cent of the process directly at the clients business to avoid disruption to their trading.

How is Uganda’s market responding to your services?
In Uganda, we took the time to run a very small pilot in two markets (Kalerwe and Nakawa) to ensure we had adapted the product offering to the needs of the market. We have also partnered with FSD Uganda to research the MSME sector to validate our findings, confirming our products are working for our customers. This research will be published early next year.

Our results in Uganda have been very encouraging. We have grown to six locations and over 40 staff, serving over 2,500 businesses with over Shs3b in loans. Based on this success, we expect to have 36 locations by end of next year with a target of over 30,000 business customers.

To do this, we will need to hire additional 180 staff members across Uganda. We have always been excited by the Ugandan opportunity due to the very strong fundamentals that support business growth. The combination of strong and forward-thinking regulation from the Ministry of Finance and the Uganda Microfinance Regulatory Authority (UMRA), combined with rapidly growing mobile money penetration and strong macroeconomic fundamentals made Uganda an attractive market for us.

How many people/SMEs have benefited from this facility?
To-date, over 80,000 MSMEs have benefited from our products across Kenya and Uganda with over 38,000 active businesses every month. We have deployed over $79m (Shs292b) in working capital loans, reaching more customers in 2019 than in the previous five years combined. This is a testament to our focus on organic growth, customer service and building products that fit the market need.

Following the reassuring growth to-date in Uganda, we expect to grow our core branch product to 36 locations in 2020, reaching over 30,000 additional MSMEs.

We are also planning to launch our partnership product, Kuza, which several major distributors to reach an additional 10,000 businesses.

As an SME, what are your biggest threats?
Due to the informal nature of many of the businesses we operate with, our customers are inherently vulnerable to numerous threats and shocks. Over 26 per cent of our customers are in the agro-retail space and subject to seasonality issues and changing weather patterns.

Theft can also be an issue for many of the businesses we work with. This is why we have worked to develop a new micro insurance product, currently being piloted in Kenya, to increase the resilience of our customer base and ensure when shocks do occur, we partner with them to rehabilitate them as fast as possible.

The biggest issue facing MSMEs is accessing financial services that work for them. The small size of these businesses makes it difficult for traditional financial to underwrite or lend to. Over 30 per cent of the MSMEs we surveyed before entering Uganda experienced ‘stock out’ days where they couldn’t operate due to cash flow issues.

Where do you see Uganda’s start-up ecosystem in the next three years?
Finscope 2018 showed that only 3 per cent of Ugandan’s gain their main income from the formal sector. This has led to an entrepreneurial spirit which the government is keen to foster and grow.

Already, we are seeing great examples of entrepreneurial spirit with the rise of regional players such as Safe Boda, Tugende and Fenix International, all of which have grown significant businesses inside Uganda and are expanding internationally.

Success starts and ends with people. We have been continuously impressed with the level of talent we have attracted in Uganda. We shall watch closely at how the ecosystem develops over the coming years as we look to further invest and expand our presence in Uganda.