THE launch and growth of digital financial services have led to an unprecedented increase in the number of people enjoying access to formal financial services. Africa is home to more digital financial services deployments than any other region globally. Mobile money solutions and agent banking now offer affordable, instant, and reliable transactions, savings, credit, and even insurance opportunities in rural villages and urban neighbourhoods where no bank had ever established a branch.
This is, quite literally, banking at your fingertips – for everyone. It is revolutionary.
‘Africa is very much at the forefront of the fintech innovation, and predominantly there is a gap of actual products available on the African continent. When looking at financial services and fintech in Europe, you have to convince Europeans to give up their traditional bank account and credit card and swap them for a finbank card or account,’ says Timothy Nuy, Co-CEO and Co-Founder of African fintech group, Finclusion.
‘In Africa, many customers don’t have any bank services and aren’t economically serviceable within traditional infrastructure because that would require a physical branch. These costs are too high. But now, by using technology, we can engage with customers without needing physical infrastructure, meaning costs are lower. Also, data wasn’t available previously as there was no effective credit bureau. So, fintech is specifically powerful in emerging markets where you’re servicing customers with new products, rather than winning them over from another service provider,’ Nuy explains.
Finclusion uses advanced proprietary artificial intelligence (AI) algorithms alongside pioneering technology to grant safe financial services while maintaining accurate automated credit decisions.
‘At Finclusion, we’re trying to provide credit like a neobank,’ Nuy tells Africa Briefing. ‘We start by providing credit built against a financial service model aimed at the biggest gap in the African market. We want to augment that with savings and insurance products to fill in the gap and offer a full range of basic financial services that our target client requires,’ he says.
‘Our target clients are undoubtedly people with income, earning anywhere from $200 to $3,000 a month. We focus on that group because it can afford credit without falling into a debt trap, and we can offer longer-term instalment credit, not short-term, like one week or one month, but a meaningful six to twelve months as a minimum. As a result, people use this credit for productive purposes.
‘We’re present predominantly in Southern and Eastern Africa, with South African and Kenyan hubs. Still, beyond that, we’re also active in Namibia and Tanzania and looking at opening in Uganda and Mozambique.’
According to Nuy, Finclusion’s model doesn’t exclude the unbanked entirely. ‘We can work with people with a mobile money account, but we require people to have a digital or financial services footprint. We’ve strategically chosen to start by giving people credit solutions and then building on other financial services.
‘So, a big target for Finclusion is the underbanked, customers that might have a mobile money account or a bank account but don’t have access to credit or a full suite of financial services that they need in everyday business. The cost of servicing the actual unbanked who don’t have any financial assistance to date is relatively high. We can’t responsibly give unemployed people credit because they wouldn’t have a source of repayment for it’.
So how does Finclusion assess clients’ creditworthiness in a region where data can sometimes be unreliable or completely lacking?
‘We go about that under three different categories. First, we do a full credit data check where available, even though it may be very light or not exist. We want to be active in building that credit bureau in the African space. Then we pull the historical 90-day data of their transactional account, which is often mobile money and phone bank accounts. We look at what income and expenses they are generating. We categorise the expenses and map those out in percentage of income and compare that to a normal credit profile,’ Nuy explains.
‘We then look at their geolocation and check their employment category. So, for example, through years of data analysis, we can show that people who work for financial services companies are, in fact, more responsible over time than people who work in other industries.
‘We calibrate the score across all these mechanisms, with income and expense behaviour probably being the most important. This score then determines how we grant credit, and we adjust the pricing of our products based on the customer’s risk category.
‘So, if the risk category is low, we might offer a longer-term instalment product. If the risk category is high, we might offer a shorter-term product with a smaller purse and then build creditworthiness in-house with these customers. Initially, we’ll provide a credit application and then upgrade and improve the product over time as the customer showcases successful payment behaviour,’ he says.
Currently, Finclusion is disbursing about $3 million a month. The fintech firm has disbursed more than $40 million in credit to end-users in the last two years. ‘We’ve serviced approximately 50,000 users in the last two years because our loan sizes are slightly larger than average. Currently, we have about 25,000 active credit customers with outstanding loans. We also have a large base of customers that still have an insurance product or other ancillary product after having already repaid their credit,’ Nuy tells Africa Briefing.
Finclusion recognises the importance of Small and Medium Enterprises (SMEs) to Africa’s growth and assists the SMEs by providing working capital loans, asset finance – for the SME or their customers at the point of sale – and Buy-Now-Pay-Later (BNPL) funding so that the SME can drive revenue growth. This aspect of Finclusion’s model is particularly crucial for many SMEs in their post-Covid recovery.
Nuy believes the most crucial part of fintech is that it can provide financial services that reduce business costs. ‘Not having to handle cash, being able to clear out banking instruments through mobile money, more people have access to credit – these are all things that stimulate the economy,’ Nuy says.
He adds: ‘A big part of our financial services products is distributing them through SMEs. We fund either the SME or their customers on checkout for cash capital to finance working capital and inventory growth. And I think that’s an important role we play in the economy’.
‘Unfortunately, recent times have caused many businesses to restart. We help these businesses grow, pick up, get traction, and make it easier for them to do business. But the lost value is devastating for many, specifically those in hospitality. We’ve seen from partnering with businesses in the hospitality sector that had a previous business that has partially failed that we can help them to better deals with their new business. We can generally help them grow quicker, access better inventory, and scale, be it a restaurant, shop, or other business. I think SMEs have taken the brunt of the damage during the Covid-19 pandemic.’
Finclusion currently has about 1,900 merchant partners and, according to Nuy, ‘some of them are active, some of them are not active yet. Our largest merchant partner sector has historically been in the medical industry, and we are currently building that out into other industries.’
Earlier this year, Finclusion secured $20 million in debt & equity funding from various prominent investors. This successful capital raise shows the attraction of Finclusion as a significant African neobank.
‘I think our opportunity is extremely attractive,’ Nuy enthuses. He adds, ‘I think when it comes to successfully creating a neobank for African consumers, we have the suitable combination of skill set, track record, access to debt, and profound knowledge of the financial services space.
Financial services are much more challenging to scale than many other businesses because you don’t only have to worry about growing your sales. But you also have to worry about lending, your collection metrics, making sure your risk-scoring is appropriate, and that you are fit to collect the loans successfully.’