Digital Banking Access for African Small Businesses

African small businesses are vital to the continent’s economic health, contributing up to one-third of its GDP. However, many are excluded from essential financial services, particularly credit, due to their size and informal nature.

Numida: Bridging the Financial Gap

Ugandan fintech startup Numida is actively addressing this challenge in East Africa. The company recently announced the successful completion of a $2.3 million seed funding round.

Founded in 2017 by Mina Shahid, Catherine Denis, and Ben Best, Numida initially focused on serving semi-formal micro and small businesses – a segment often overlooked by traditional financial institutions.

From Bookkeeping to Direct Lending

Numida’s journey began with a bookkeeping tool designed to help microfinance institutions (MFIs) assess the creditworthiness of these businesses. The aim was to provide unsecured credit based on reliable financial data.

However, the founders discovered that MFIs were hesitant to alter their established underwriting practices. Despite appreciating the data Numida provided, they continued to require collateral, effectively denying loans to many applicants.

This realization prompted a pivotal shift in strategy. Shahid explained that to truly unlock access to resources for these businesses, Numida needed to become a direct lender itself.

A Proprietary Credit Scoring System

Numida now utilizes a unique credit score to offer risk-adjusted pricing on initial loans. Subsequently, businesses can access unsecured working capital loans of up to $3,500 within a remarkably short timeframe – less than two hours.

Growth and Impact

After refining its underwriting process and credit risk algorithm between May 2017 and September 2019, Numida fully launched in October 2019. The company has since experienced a sixfold increase in lending volume.

To date, Numida has disbursed over $2 million in unsecured credit to more than 3,000 micro and small businesses in Uganda, with a monthly disbursement rate of approximately $250,000. Strong collection rates, high repayment percentages, and consistent client retention further demonstrate its success.

Data-Driven Underwriting

While the consumer digital lending market in East Africa is thriving, fewer startups focus on the micro and small business sector. Numida distinguishes itself by prioritizing relevant data and avoiding the collection of unnecessary information, such as social media activity.

Shahid emphasized the importance of focusing on business fundamentals, cash flow, and essential demographic data. The company has invested in building its own dataset, as readily available cash flow data for these businesses is scarce in Africa.

Overcoming Initial Challenges

The initial development of Numida’s underwriting model, based on 15,000 loans, was a lengthy process. This initially impacted customer onboarding speed. However, the company has since streamlined its operations and can now efficiently serve a large customer base.

The COVID-19 pandemic also contributed to accelerated growth, and the new investment positions Numida for continued expansion.

Strategic Investment from MFS Africa

MFS Africa, a pan-African payments company, led the seed round. Other participants included DRK Foundation, Equilibria Capital, Segal Family Foundation, and various angel investors.

MFS Africa previously acquired Ugandan fintech Beyonic in June 2020.

Potential for Acquisition

Shahid believes that a successful lending startup targeting small businesses in Africa is a prime acquisition target for a payments platform. He argues that offering credit fosters customer loyalty and retention within a payments ecosystem.

He views MFS Africa as a strategic investor, providing the infrastructure necessary for Numida to scale effectively. He anticipates a potential future collaboration or acquisition.

Future Expansion Plans

With the new funding, Numida intends to expand aggressively within Uganda and pilot its services in a new market, with West Africa being a strong contender. Ghana, with its similar mobile money penetration and business landscape, is currently the leading candidate.

Furthermore, Numida plans to introduce additional financial services to its customers, including payments, micro-insurance, and deposit options.