Soropreneurs and microbusinesses are the lifeblood of Africa’s informal and semi-formal economies, but when it comes to accessing working capital loans, most financial institutions are typically underserved.
“Traditional financial institutions do not lend to our customer base because they lack collateral, documents and guarantors,” he said. “So we are going to really focus on the niche market of semi-formal businesses that are primarily cash operated.”
In addition, informal local lenders tend to impose high interest rates and predatory terms, putting small businesses at serious risk.
As a result, the company has seen a lot of hiring in Uganda, with little to no competition in the sector.
A Human Digital Approach for Cash-Based Businesses
To serve the informal and semi-formal markets, Numida has built a credit scoring model that does not require electronic transaction data as most do. Instead, loan applications are processed based on your inputs into the mobile app.
“Our claim to fame is having built our scoring model and all of our operational practices and underwriting so that we can provide unsecured working capital loans to cash-based businesses with no digital trading history,” explains Shahid. Did.
This is unlike other digital lending platforms on the continent, where businesses need to use POS systems or engage in the e-commerce market to build their credit scores, he said.
“We actually built a model that is independent of all of these things so we can serve a wider customer segment,” added Shahid.
Numida’s unique scoring model is based on historical data from previously issued loans rather than relying on digital transaction data.
Because of this, the company has been able to specifically target companies that have good cash flow but struggle to build credit scores because they mostly trade in cash.
Nonetheless, when it comes to loans, Shahid said customers are paying with mobile money. This is also the payment method used for his 99% of borrowers, with bank transfers he is reserved for the highest loans over $2000.
Numida’s merchant repayment is what the mobile connectivity research institute GSMA called an “ecosystem transaction” in its 2022 annual report. state of the industry report.
As noted by the GSMA, ecosystem transactions such as bill payments, lump sum payments, merchant payments and international transfers accounted for less than 10% of all mobile money payments in 2012. But in 2021, this number has risen to 20% of his $1 trillion transactions processed.
With a wealth of repayment data from a large number of relatively small loans processed over the years, the company has “developed a significant set of fraud flags that are automatically triggered in the loan application flow, [can then] We will withdraw payments prior to subsequent loans based on app usage behavior,” explained Shahid.
But there are limits to how much of the system can be automated, he said. As such, the startup still has human credit officers managing accounts and collecting additional information needed for the underwriting process.
He added that the combination of human touch and machine verification will enable the company to develop digital payment products for businesses, “which will enable us to enter the payment stream of our customers and their customers.” ‘ said.
In fact, Numida has already made inroads into e-commerce lending, including a partnership initiative with the pan-African market. Jumia.
There is also a huge growth opportunity for the company moving forward on the African continent, as cash-based semi-formal businesses occupy “huge markets in almost every country in Africa”.
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