Kenya-based fintech 4G Capital is looking to scale lending after raising $18.5 million from Lightrock – TechCrunch
Kenya-based fintech 4G Capital, which provides unsecured loans to micro-enterprises, has raised $18.5 million in Series C funding from global private equity firm Lightrock.
The equity funding comes as the fintech plans to launch a range of new products and services, including new loans that will increase its $1,000 credit limit and allow for longer repayment terms, currently a maximum of one month. All of this is in his plan to expand his customer base and increase his profits.
The products are currently in development, but there are plans to also lend to larger companies in the agricultural value chain as the company expands its reach into micro-sellers, 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 with other digital vendors like to be connected to delivery services.
“This year we will be developing new lending products with longer maturities and larger amounts, as well as lending to larger companies in the agricultural value chain… We also plan to launch an app that will allow our customers to better manage their businesses and have access to our goods and services and connect them to other suppliers such as FMCG (Fast Moving Consumer Goods) retailers. The future of 4G is a truly richer value proposition for our customers, powered by data and AI,” said Hennessy-Barrett.
4G Capital is already conducting trials of its latest retail financial product called Kuza, which gives customers access to goods from FMCG manufacturers and retailers on credit.
Hennessy-Barrett founded 4G Capital in 2013 after a brief stint as a credit manager in Kenya for a credit company, an opportunity during which he traveled around Africa gaining insight into the continent’s credit space.
“I’ve spent a lot of time in informal markets and at all levels, informing my knowledge of what I need 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 credit space, targeting the micro traders who are often excluded from formal credit and banking institutions. Drawing on his experience as a consultant and 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 available over the phone.
“I could see how many banks and financial institutions had closed their community branches and relocated call centers to emerging markets where labor costs were lower. But the banks didn’t know their customers anymore, so they couldn’t make good credit decisions,” said Hennessy-Barrett.
“I’ve always felt it was important, especially when dealing with people who can be very vulnerable, to have a touchpoint for personal interaction that’s then augmented with technology.”
Hennessy-Barrett said physical locations allow 4G Capital to authenticate that they are dealing with real companies and also help them provide business training to their clients.
“It makes us a lot more resilient in terms of fraud prevention, money laundering, terrorist financing and stuff like that, where unfortunately you don’t necessarily know who’s on the other end when you lend blindly,” he said.
“We know our customers better than anyone because we are at their side in the markets. Having said that, we don’t run conventional brick-and-mortar microfinance businesses – we have very lean teams of three to five people who are incredibly efficient in terms of their productivity.”
Hennessy-Barrett said 4G Capital has originated $230 million in loans since launch and has lent to over 1.75 million micro-businesses over the same period, a 90% year-over-year growth.
The lender has also worked with a number of debt investors who have provided them with on-lending 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 credit union and high net worth individuals.
After nearly a decade in operation, 4G Capital is also exploring new growth opportunities in West and North Africa with a keen eye on partnerships in Ghana, Nigeria and Egypt, which will come after deepening and enriching its market share and customer value proposition in its core markets.
As it scales its operations, 4G Capital plans to invest in data science improvements to its scoring algorithm and expand its management team as its core banking system evolves.
“We want to make sure we’re growing at the right pace so that we have the capital we need to transition to the next phase and that we’re laying the foundations right to enable this digital scale,” said Hennessy-Barrett .
The latest round of funding is $27.5 million, the total equity funding 4G Capital has raised since 2016. The deal also comes with the support of Lightrock’s partner Shakir Merali, who is now joining the board of 4G Capital.
Commenting on the deal, Merali said:
“Often used to justify supporting many African companies, ‘financial inclusion’ has not always yielded 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 vast market of lucrative businesses – cell phone repairers, hairdressers and food vendors – that dot the African landscape.”