Kenya-based fintech firm 4G Capital, which provides unsecured credit to micro-enterprises, has raised $18.5 million in Series C funding from global private equity firm Lightrock.
The equity financing comes as the fintech plans to roll out a range of new products and services, including new loans that increase the credit limit by $1,000, and allow longer repayment periods from the current one-month maximum. All this is in the plan to expand his customer base and grow his profits.
The products are currently in development, but the plan is to extend loans to larger companies in the agro-value chain as well as the company expands its reach from micro-vendors, which have been its target market since its launch in 2013.
4G Capital CEO and founder Wayne Hennessy-Barrett told TechCrunch that they will also be launching an app later this year that will allow their customers to sell on digital marketplaces and connect with other digital providers such as delivery services.
“We will build new loan products this year, with longer maturities and larger amounts, and we will provide loans to larger companies in the agro-value chain… We also plan to launch an app that will help our customers run their businesses better , access our goods and services, and connect them with other providers such as fast moving consumer goods (FMCG) distributors. The future of 4G is a truly enriched value proposition for our customers, driven by data and AI,” said Barrett .
4G Capital is already piloting its latest retail finance product called Kuza, which will allow customers to access goods from FMCG manufacturers and distributors on credit.
Barrett launched 4G Capital in 2013 after a brief stint as a credit manager in Kenya for a lender, an opportunity that took him traveling across Africa and gaining insight into the continent’s lending space.
“I spent a lot of time in informal markets and across the board, informing my knowledge of what to look for – the energy, potential and vibrancy of Kenya’s informal traders; what they needed was someone to support them,” said the British Army veteran.
It is this experience that inspired him to enter the lending space with a target for the micro traders, who are often locked out by formal lending and banking institutions. Drawing on his experience in consultancy and as a credit manager, he tried to do things differently: 4G Capital set up physical branches to get to know its customers better, instead of just being reachable by phone.
“I could see how many banks and financial institutions had closed community branches, offshore call centers, to emerging markets where labor costs were lower. But banks no longer knew their customers and were therefore unable to make sound credit decisions,” said Barrett.
“I’ve always found it important, especially when dealing with people who can be quite vulnerable, to have a personal point of interaction, which is then complemented by technology.”
4G Capital offers short-term loans to micro-enterprises in Kenya and Uganda, which are often locked out by formal banking institutions. Image Credits: 4G Capital
Barrett said brick-and-mortar locations allow 4G Capital to verify they are dealing with real companies, in addition to helping them deliver business training to their customers.
“It makes us a lot more resilient to fraud prevention, money laundering, terrorist financing and things like that. Unfortunately, if you’re lending money blindly, you don’t necessarily know who’s on the other side.” he said.
“We know our customers better than anyone because we stand next to them in the markets. Nevertheless, we do not conduct physical conventional microfinance operations – we have very lightweight teams of three to five people who are incredibly efficient in terms of their productivity.”
Barrett said 4G Capital has provided loans worth $230 million since launch and has lent more than 1.75 million micro-enterprises over the same period, growing 90% year-over-year.
The lender has also partnered with a number of debt investors who have provided them with loans for further loans, including Alphamundi, the Swiss impact investor, Citi Bank – which provided them with a $3 million loan in 2020, a facility guaranteed by the US International. Development Finance Corporation, the Ford Foundation, Kenya’s Cooperative Bank and high net worth individuals.
Having been in business for nearly a decade, 4G Capital is also exploring new growth opportunities in West and North Africa with a keen eye for partnerships in Ghana, Nigeria and Egypt, which will happen after deepening and enriching its market share and customer value proposition at its core . markets.
As it plans to scale its business, 4G Capital plans to invest in data science improvements to its evaluation algorithm and expand its management team as it develops its core banking system.
“We want to make sure we’re growing at the right pace so we have the capital we need to move into the next phase, and that we’re laying the groundwork to enable that digital scale-up,” said Barrett.
The recent funding round raises $24.5 million, the total equity that 4G Capital has raised since 2016. The deal also comes with the backing of Lightrock’s partner Shakir Merali, who now joins 4G Capital’s board of directors.
Merali said while commenting on the deal:
“Often used to justify the support of many African companies, ‘financial inclusion’ has not always translated into positive outcomes for customers. What is needed on the continent is investment capital to support companies with the mission of financial empowerment. 4G Capital provides liquidity to the huge market of economically generative companies – the mobile phone repairers, hairdressers and food vendors – found all over the African landscape.”
This post Kenya’s fintech 4G Capital to scale up lending after raising $18.5M from Lightrock – TechCrunch was original published at “https://techcrunch.com/2022/03/15/kenya-based-fintech-4g-capital-to-scale-lending-after-raising-18-5m-from-lightrock/”
