YC-backed fintech Numida raises $12.3 million led by Serena Ventures to extend loans to MSMEs outside Uganda • TechCrunch

Micro, Small and Medium Enterprises (MSMEs) across Africa make up the bulk – over 90% – of businesses on the continent, but remain marginalized in accessing credit from formal institutions due to the nature of their operations; for example, many often lack the type of security acceptable by the banks.

To bridge the gap, Uganda-based fintech Numida has chosen to focus its digital lending business on small businesses as part of its strategy to drive financial inclusion in emerging markets.

Spurred by an increase in demand for its services, Numida is currently eyeing growth opportunities beyond Uganda and says it has a proven business model that can be adopted across the continent to unlock the potential of MSMEs.

The growth plans come on the back of $12.3 million pre-series A equity-debt funding in a round led by Serena Ventures with participation from Breega, 4Di Capital, Launch Africa, Soma Capital and Y Combinator, VCs all making their first investment in Uganda.

Existing strategic investor MFS Africa also made a follow-on investment, while Lendable Asset Management extended $5 million in debt to the startup.

“I am most excited to continue to build and offer financial products to these micro and small business owners who have been forgotten by the traditional financial industry even though they are hardworking and have viable businesses. There are so many of these businesses across the continent, we truly believe we have proven a model in Uganda that can be pan-African and unlock the potential of these businesses to grow and achieve great things,” Numida CEO, Mina Shahid, who co-founded the startup in 2017 with Catherine Denis and Ben Best, told TechCrunch.

Numida co-founders (L-R) Catherine Denis, Ben Bes and Mina Shahid. Image credit: Numida

Ethical lending

Numida plans to extend loans to an additional 10,000 businesses to reach its target of 40,000 within the next 18 months, a target that will get closer by entering two new African markets (chosen from Ghana, Nigeria, Egypt or Kenya).

Companies in the portfolio receive loans of between $100 and $5,000, an amount that is paid after one month and attracts interest rates of between 10% and 16%.

“We do risk-based pricing, but on average the interest rate is about 11.5%,” Shahid said.

For credit rating, Numida, which is the first startup in the East African country to enter YC (W22), looks at various aspects of businesses, including the sector and cash flow. Repeat customers in good standing get their loans approved immediately, but new applicants, and repeat companies seeking larger facilities, have to wait up to 24 hours for their loans to be approved.

The startup uses its own credit scoring model, which Shahid says is built from the loans it has made to customers and business profiles. He added that they operate differently from most digital lenders that typically scrape data from clients’ phone books and social media accounts as a condition of lending — many of which reach out to borrowers’ contacts with debt-shaming messages in cases of default.

“When we started building this business, we saw that a lot of people were being taken advantage of because they didn’t really understand the user terms because most people don’t actually read these privacy policies or user agreements to understand what they were giving up. And so, we wanted to be very aware of our approach and we only ask for information that helps us determine if it is a business and if the person applying for the loan is the owner of the business,” said Shahid.

“The information we use is the one provided by the customer in the app, so we don’t snoop or scrape any data … We have a bunch of historical data that helps determine if the information we collect is relatively in the right ballpark.”

After Numida raised its initial funding last year, Numida has grown over 7.5 times driven by the soaring demand for quick loans. To date, the startup has issued $20 million in working capital to micro and small businesses, having grown from issuing $250,000 a month to $2 million.

The value of loans is set to grow as the startup continues to receive debt support from institutions like Lendable. Shahid said they hope to, in the meantime, continue to retool their products for even more affordable prices.

“We continue to improve our assessment of risk and our understanding of risk so that we can build a healthy portfolio that can allow us to reduce our rates while continuing to offer unsecured working capital loan products to these businesses,” he said.