The digital banking space in Africa is taking shape as neobanks on the continent grow in numbers like their global counterparts. Venture capital bets from institutional investors in this class of fintechs is massive, and in the latest development from Africa, it seems individual investors’ appetites are increasing likewise.
Finclusion Group, a fintech that uses AI algorithms to provide financial services to African customers via an array of credit-centric products, has raised $20 million in debt and equity pre-Series A financing.
Investors in the round include Andela and Flutterwave co-founder Iyin Aboyeji (who invested via his VC firm Future Africa), LendInvest founder Christian Faes and ComplyAdvantage founder Charlie Delingpole.
Others include Amandine Lobelle, Jai Mahtani, Sudeep Ramnani, Jonathan Doerr, Richard Aseme (RCA Ventures) and Klemens Hallmann, among others. They join the likes of Manuel Koser, Alexander Schuetz, Christian Angermayer and Leo Stiegeler, investors in the company’s previous round.
Finclusion’s debt financing, which makes up the larger share of the overall round, was provided by local currency funds in Eswatini and South Africa. It follows the $20 million debt facility supplied by emerging markets debt provider Lendable last September.
The fintech intends to grow existing operations in South Africa, Eswatini, Kenya, Namibia and Tanzania and expand into Mozambique and Uganda.
According to a statement by the company, the expansion, facilitated by the recent financing, is part of Finclusion’s strategy to “drive financial inclusion within market segments that have traditionally been underserved across the African continent, with a current focus on southern and eastern Africa.”
Since its inception in 2018, Finclusion has built consumer-facing credit products to close the credit gap in countries where it operates.
There’s SmartAdvance, where Finclusion, via employer partnerships, offers solutions for employees’ financial well-being. Its wage streaming product provides payroll loans and future wage loans where employees can take loans off the back of their salary, deduct from their payroll and lend through employer relationships.
The Africa-focused fintech has disbursed over $300 million worth of loans to more than 240,000 customers up until this point. Following the Lendable debt capital raise in September, the group has recorded an uptick in monthly disbursements, increasing 140% over the last 18 months. Finclusion’s loan book also grew 30% from December 2020 to December 2021.
Despite this growth, Finclusion only has 28,000 customers with active loans outstanding, almost 10% of the total customers the company has served since 2018.
“This is one of the reasons we are going into a neobank strategy to maintain old and new users rather than effectively churning them out,” said chief executive Timothy Nuy to TechCrunch on why the credit provider is transforming into a neobank now.
Nuy affirmed that it had always been Finclusion’s intention to become a neobank. Leading with a credit-led approach — which several digital banks across Africa such as Carbon and FairMoney have adopted — was a great customer acquisition tool for the company, he said.
African customers are in dire need of credit. But from a long-term perspective of a company offering just loans, it can be hard to compete with other lenders that provide deposits and investments, financial services that any lender, backed with years of customers’ credit history, can efficiently cross-sell.
Finclusion, taking a cue from other credit-first neobanks, has started diversifying its offerings. Nuy said the company has an insurance product and plans to offer savings products, cards and buy now, pay later offerings via a merchant network in a bid to form a pan-African neobank.
So far, the well-funded digital banks on the continent are either in a single country or, at most, two countries. Carbon operates in Nigeria and Kenya; FairMoney has customers in Nigeria and India; Kuda, a deposit-led neobank worth half a billion dollars in its last round, only serves customers in Nigeria; and Patrice Motsepe-backed TymeBank focuses on South Africa.
A pan-African approach doesn’t necessarily mean more customers (Finclusion, despite its presence in five countries, has fewer customers than the aforementioned digital banks). Still, Finclusion’s strategy is pretty ambitious compared to other digital banks’ play-it-safe model.
“I think there’s a lot of similarities, often between regional markets. Many things we do for South Africa will work the same way as in Nairobi. A lot of what we do there, we can use it in Kampala and Dar es Salaam with some adjustments,” said Nuy on how Finclusion operates across multiple markets.
“Rolling it [digital banking] out across multiple countries, if you have the operational experience, isn’t difficult. I think that’s where we have an edge that we can build towards a pan-African play quicker than others. And I think that experience is something that really sets us apart right now.”
Finclusion also uses a holistic tech stack that gets continuously upgraded with specific amendments in each country. This way, the company can scale across multiple geographies simultaneously and efficiently, said the chief executive.
Additionally, the company has administrative hubs to oversee operations in its five markets. With one each in Kenya and South Africa for the eastern and southern regions (its tech teams are also in these countries), Finclusion says it will open another in West Africa soon.
Having proven that it can raise institutional debt (over $32 million in the last six months from Lendable and 12 local currency facilities) and build credit histories of thousands of customers, Finclusion needs to increase its efforts on distribution to reach neobank-like numbers.
Its employer partnerships offering provides an avenue to achieve this. With over 1.2 million employees working for its existing employer partners, Finclusion says it holds many potential users at its disposal to activate in the long run.