- Small and Medium enterprises (SMEs) are the backbone of the world economy, accounting for most businesses across nearly every region.
- In Africa, SMEs provide an estimated80 percentof jobs across the continent, representing an important driver of economic growth.
- Credit constraints are a serious challenge for SMEs. Without reliable sources of working capital, SMEs are unable to make investments needed for growth, leading to stagnation.
According to the World Bank, Small and Medium enterprises (SMEs) are the backbone of the world economy, accounting for most businesses across nearly every region. In Africa, SMEs provide an estimated80 percentof jobs across the continent, representing an important driver of economic growth.
The global lender says Sub-Saharan Africa alone has 44 million Micro, Small and Medium Enterprises (MSMEs) , almost all of which are micro.
“For these businesses to grow, create more jobs, and generate economic growth, they need access to capital. Fifty-one percentof these vital businesses, however, require more funding than they can currently access. Credit constraints are a serious challenge for SMEs. Without reliable sources of working capital, SMEs are unable to make investments needed for growth, leading to stagnation,” says World Bank.
The Exchange sat down with 4G Capital Founder and CEO Wayne Hennessey-Barrett at the Africa Tech Summit to discuss what it is they are doing to ease this burden of business financing.
What does 4G Capital do and why are you at the Africa Tech Summit?
Wayne Hennessy-Barrett: We are the neo-bank for Africa. Our absolute mission is to grow micros and SMEs with capital and knowledge. We do that by providing the working capital micro-loans of between $50-1000 in Kenya and Uganda. 4G blends that loan with enterprise training. So we teach our clients and equip them with skills to help their businesses grow. This is our 10th anniversary and we are proud to be here as a sponsor of the Africa Tech Summit. We have a great future ahead of us after a really incredible journey so far.
How many SMEs have you worked with in the East African market?
We have serviced over 300,000 Small Enterprises so far and we have issued over $290 million in credit. Clients generally take between 10 to 13 loans in the course of the year. It is short-term, instant, unsecured working capital. On the right terms for those businesses so that they can grow.
How short are the short-term loans?
Between 2 and 4 weeks. We have one product that is a 14-day product that embeds financing. This is where we partner with distributors and brands so they can sell on credit. This allows them to boost their sales by at least 50 percent. The end duka or shop owner boosts pay revenue by an average of 82 percent. This is an incredibly powerful medicine to help our businesses and partners to grow.
There is a 30-day loan that we lend directly to micro and small enterprises with a hybrid approach. We have very well-trained relationship officers who provide Private banking experience. The first loan happens within a day, repeat loans happen in under a minute using our technology and customers can grow their businesses.
What lessons have you learned about entrepreneurs in Africa ?
What I have seen in the last 10 years is that African entrepreneurs are amazing and they are a great bet. I am an African entrepreneur and I am good bet for my shareholders. My clients are a good bet for me because we are helping each other grow. What we have is alignment between everybody winning together. People are resilient, tough, smart but often the business is small and so they don’t always have a voice.
That is something that we feel very strongly about not only helping businesses to grow but also telling the stories to the wider world because this is an amazing investment opportunity.
I can quantify that with our numbers that show that the average repayment rate is 95 percent. This is from a totally unsecured loan to a complete stranger and they pay within one day. 95 percent repay on time because they use this loan to grow their businesses. We are lending responsibly to the right people in the first place.
As time goes on we have learned more about the market. We have learnt that we cannot only service agricultural mama mbogas, but also general stores and service providers like seamstresses and eateries. For anybody with a fast business cycle, we can help.
There is a high demand for access to credit. Are you able to reach that demand in East Africa?
By 2050, one every four human beings on this planet will be African. We are getting toward the 10 billion people population. One in three people of working age will be African. The productivity of this continent is growing rapidly. 80% of the economy is in self-employment, micro traders, and SMEs pushing for a better future, so the demand is high and is only growing.
In 2019, the finance gap that micro-enterprises needed was $331 billion. Years later, it is going to grow with the same magnitude as population growth. Globally, for SME funding, you are looking at a $5 trillion investment
opportunity. You can look at it as a pessimist and go that’s a huge problem or you can think of it as an entrepreneur as an investment opportunity. This challenge is an amazing opportunity.
What are some of the challenges that have experienced?
The reality is that this is an amazing opportunity, but it comes with some conditions. Sometimes you have good months, sometimes you have bad months. Our fortunes will mirror the wider economy. Covid -19 pandemic was really tough, external shocks like that and even the drought and even some horrible commodity shock affect our customers’ ability to trade which affect their customers’ ability to buy, which puts pressure on everyone.
What you have got to do is to be resilient if you are running a business and you have got to keep Cash reserves in your back pocket, so you can weather those down cycles and that is part of the training we give our customers on how to save and provisions for tough times.
Sometimes you get people who over-promise they think they can do more than they can and show excess enthusiasm and you got to be mature and walk people up to success. What we call in our company putting people in the success box. Make sure they are well-trained and have the resources they need to operate. They also need to know how to build relationships up and down. Make sure they are always supported when they ask for help. This takes a while as you have to build a culture in your business.
With the government offering hustler-fund support, what are the other incentives that you would like to see so you can help a greater pool of entrepreneurs ?
Kenya and Uganda have a pretty positive business environment. We request the government to make it easy as possible for investors to invest, for companies to operate, and have by all means regulations to protect the customer. We do not want this to be the Wild West, where people are taking risks with people’s lives and livelihoods.
We are at the forefront movement of bringing regulations to protect the people and we are happy to see that some of those regulations have arrived. It would be great to see those approval processes happening faster. This is because we can’t function until we are regulated. I am really looking forward to seeing that happen. We want to see innovation supported. We want to see people able to function and compete in a very healthy marketplace. We are proud to support the national agenda of democratizing financial wealth creation among our heroes of the hustle.
What’s the future for 4G capital
There are so many exciting things happening. To begin with, we are focusing on growing the value we can give our customers In Kenya and Uganda. That means more loan products coming out. We just started piloting a school fees loan. It looks like a very successful thing that helps reduce the financial burden on our clients so they can focus on their businesses and educate their children with peace of mind.
We are looking at asset financing so we can help the green economy grow in Kenya and Uganda. This means green technology such as off-grid solar Irrigation systems for farmers can be affordable and within reach. So we can grow our economy and look after our clients. We are looking at financing economic fuel so that people can move away from carbon charcoal and corrosive affordably. We are here to grow value not cut off access.
We are looking at other markets as well and we will do that when we upgrade our technological
systems later on in the year.
Last year, we brought artificial intelligence power risk-based pricing which helps ourpPartners
and distribution partners in sales growth averaged together.