M-KOPA, the asset financing platform that offers underbanked African customers access to “productive assets” and the ability to pay for them via digital micropayments, has secured more than $250 million in new funding.
The capital injection includes $55 million in equity and over $200 million in debt, huge sums in both categories that testify to strong fundamentals and solid performance for any growth-stage company in this venture capital’s current contraction. Following the $75 million in equity the Kenyan-based fintech announced last March, M-KOPA has raised $245 million in equity funding since its inception in 2011.
Japanese-based trading house Sumitomo Corporation, which M-KOPA co-founder and CEO Jesse Moore on a call with TechCrunch described as the type of investor whose long-term visions complement M-KOPA’s aspirations, led the growth equity capital, donating the lion’s share at $36.5 million.
“They share with us a conviction that even though there might be wobbles in the economy, there’s an undeniable trend towards progress and an undeniable trend that the technology enablement of financial services and other digital services will only make the continent more successful,” commented the CEO on Sumitomo’s first significant fintech-focused investment on the continent.
The firm, known for its infrastructural deals in Africa, in a statement, said, “By leveraging each expertise and resource, we believe this partnership will have a positive impact on both the financial and telecommunications sectors, ultimately enriching the lives of people across the continent.” Meanwhile, Blue Haven Initiative, Lightrock, Broadscale Group and Latitude, the sister fund to Local Globe, participated in the equity round alongside Sumitomo.
Underbanked customers in emerging markets face challenges due to low-income, limited credit histories, and lack of collateral. Strong identity and credit scoring infrastructure in developed markets enables various credit options, allowing individuals to make large purchases through post-paid methods. However, in sub-Saharan Africa, where 85% of the population lives on less than $5.50 per day, making major purchases without credit is difficult, while access to credit remains limited. Also, in these markets, individuals have limited pre-existing financial identities and conventional collateral.
M-KOPA’s business revolves around using debt to finance customers’ purchase of products and services it sells, such as smartphones and solar power systems, as well as loans and health insurance across four markets: Kenya, Uganda, Ghana and Nigeria. With its flexible credit model, the business allows individuals to pay a small deposit for the two products above and pay off through micro-installments, helping build their credit history over time. Default rates are little above 10%.
Until now, M-KOPA had received a little over $100 million in working capital financing for this repayment cycle. It has doubled that amount with this new financing. Standard Bank, Africa’s largest bank in terms of assets, provided half of the $200 million+ “sustainability-linked” debt financing. Development financial institutions — the IFC, FMO and BII and funds managed by Lion’s Head Global Partners, Mirova SunFunder and Nithio — supplied the rest.
Moore noted in a TechCrunch interview that the funding, one of the largest combined debt and equity raises in African tech, will allow M-KOPA to double the size of its now 3-million-strong customer base in existing markets (a metric which already witnessed an 85% CAGR from 2020 to 2022.)
The asset financier also intends to extend its financial services offerings and product sets and reduce greenhouse gas emissions in Kenya and Uganda, where its solar product is more prominent. However, what remains a top priority for the company is to continue to drive women’s financial inclusion across its operations (in 2020, when M-KOPA sold smartphones in Kenya, about 30% of its customers were women; two years later, it now stands slightly over 40% but the objective is to reach over 60%, the company’s chief executive noted.)
“Across all the markets, one key theme for us, in terms of broader impact, is our ability to close the gender gap of our consumers and I think we’re starting to make a notable impact on that problem. Data shows that women in sub-Saharan Africa are 20% less likely than men to own a smartphone,” said Moore. “There’s work to be done and our sustainability-linked facility is effectively an agreement between the lenders and M-KOPA to continue to try to overachieve on that front, especially as the quality of credit from female customers bests that of men globally so the ability to reach more female consumers with life-enhancing smartphones, and digital financial services is a win-win for us.”
In addition, last year, M-KOPA claimed to have provided over $600 million in cumulative credit for its underbanked customers via a network of over 10,000 agents; 52% of these agents are women, Moore disclosed on the call, and the credit figure now touches over $1 billion.
Various models, such as agency banking and community-based finance, tackle the financial inclusion problem in Africa. But the pay-as-you-go model employed by M-KOPA, which starts with providing assets on a credit sale basis (as the wedge fintech product) and building on that relationship to cross-sell financial services via partnerships (for instance, it partnered with Turaco to offer health insurance), is unique in itself, and according to Moore, “highly scalable, very commercially sustainable with a huge impact.”
Given its success in East and West Africa, where it has sold over a million solar home systems and helped avoid 2 million tonnes of carbon dioxide emissions, M-KOPA will now set its sights on South Africa, where Moore says the company is ready to open a pilot operation in the next few weeks. Electric mobility is also a category the 10-year-old asset financier, which directly employs nearly 2,000 people across Africa, plans to test out, starting in Nairobi.
“There’s a huge demand for life-enhancing products like smartphones and solar systems, which are difficult to afford, but we’ve made them affordable and accessible to our customers,” said Moore. “Our next category in R&D right now is electric motorcycles. We’re very excited about electric mobility and we’re sure that in the next couple of decades, there will be a big switch in ownership where electric motorbikes will scale when there’s financing to go with them.”