Mobile Fintech opens African SMEs to International trade

Fintech lending via mobile platorms, is the best way to ensure liquidity for African SMEs struggling in a climate of worldwide withdrawal from risky markets and small‐scale players, claims Viola Llewellyn, co‐ founder of SME liquidity provider Ovamba Solutions.

Ovamba Solutions, founded in 2013, funds transactions between African SMEs, giving them the liquidity they need to grow and the relationships they need to enter international   trade.

World Bank figures show Africa suffers from a credit gap of over $360 billion, and SMEs struggle to access the capital needed to scale their businesses and create further employment. With large banks like Barclays scaling back a traditionally large footprint in Africa, small enterprises have fewer channels to access  liquidity.

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Llewellyn tells TXF: “We came on the scene because of the credit gap in Africa. Ovamba sees its role as helping to move the capital required for African SMEs to grow into the hands of those with the right risk profile.”

The fintech provider also aims to open up SMEs to international trading opportunities. “Those that don’t understand Africa think they can improve SMEs by just giving them money. That’s not the case – what they need is connectivity to big suppliers,” says Llewellyn. “Domestic wholesalers need to find international retailers, and our international presence lets us do that.” Ovamba is headquartered in Cameroon, with offices in Maryland.

Decades after independence, African economies still rely to a large extent on foreign trade, and  increasingly with China, while synergies with neighbouring African economies are not exploited. Intra‐  Africa trade is only 11% of the continent’s trade ‐ compared with 60% for Europe. Llewellyn, whose    parents are from Cameroon, says she feels both personally and professionally that she has a role to play in changing this by encouraging intra‐African  trade.

Based in Douala, Cameroon’s biggest port and a trade hub in West Africa, the company is well placed to help fund the many trade transactions which pass through there across western and central Africa.

The SME funding solution involves Ovamba purchasing or selling goods on behalf of the client, in order to facilitate a smoother transaction, enabling the business to grow faster. The fee charged on the transaction depends on the client’s risk profile, and ranges from 12.5% annualised to 33%‐36% annualised including fees. Transactions covered by the outfit range from 60,000 to 110,000 euros, with a term of three to six months. Euros is Ovamba’s favoured currency, as the West African CFA franc, used across West Africa, is pegged to the euro. The funding is Islamic finance   compliant.

Levelling the playing field for African  entrepreneurs

“Fintech is the number one tool for creating agnostic acceptance and levelling the playing field, allowing everyone to access capital,” says Llewellyn.

Technology can help remove the conscious and unconscious biases present in traditional banking. One of Ovamba’s first clients, a pharmacy owner, had her application for a loan rejected from a bank because of suspicion over her gender and business proficiency. Applying through a mobile application rather than in person can neutralise those prejudices, ensuring decisions are grounded in data rather than personal preference.

Africa has ‘leapfrogged’ into mobile technology, facilitating financial technology platforms. The continent has over 67% mobile penetration currently, with Ericsson predicting 100% penetration by 2021.Ovamba’s platforms is accessible by mobile, where small business owners can apply for a transaction online and be pre‐ qualified within 48 hours.

This fintech solution is still relatively new to the continent. “The African continent has not had a notable alternative finance asset class,”  she says. “It has had microfinance and what we call the grey market of informal borrowing and lending between different social  groups.”

Microfinance, long seen as a panacea for developing economies, has been slower at promoting the growth of small enterprises. “It is my opinion and Ovamba’s observation that some of the smaller microfinance institutions do keep companies small,” Llewellyn says, explaining microfinanciers cannot buy and sell on behalf of clients, and have been known to have less than efficient screening   procedures.

The dearth of data around small enterprises in Africa is another stumbling block. “The appetite and characteristics of finance institutions is geared towards eliminating all risk but this results in opting to do nothing.” The withdrawal of banks from the continent means data is even harder to come by now, and vast swathes of potential clients are considered too risky to deal with – with no detailed analysis of the risks    and opportunities.

An honest approach to risk relies on on‐the‐ground knowledge, which Ovamba collects through data points from each client’s record on repayment. “Our data points exceed that of local banks by a few hundred”, says Llewellyn. The risks incurred on the transactions are balanced out with their short tenure and the backing by collateral.

Another advantage outfits like Ovamba have is that traditional banking is mistrusted. Clients gravitate towards alternative financiers like Ovamba rather than banks because they more closely resemble local and familiar forms of  financing.

Complying to Sharia law on financing means Ovamba’s financing is free of riba, or interest, and means Ovamba’s financing model can spread out into North   Africa.

Is Ovamba one more indication that Africa is rising? “We need to be very realistic,” says Llewellyn. “What    is Africa rising to and from? I think really what we should be saying is that Africa is a destination for private sector business, that there is a rise in the sophistication and requirements of African SMEs looking for partnerships to build.”

Investment in Ovamba has come from international sources. Fintech providers Crowdcredit and Courtyard Capital announced investments last week. Crowdcredit, a Japan‐based peer‐to‐peer lender, committed 800,000 euros over the past six weeks, and UK‐based Courtyard Capital has the scope to invest up to 500,000 euros in the first  year.

The investors Ovamba is looking for share their vision that charitable solutions to Africa’s trade finance gap are not sustainable, and understand the African climate for SMEs and   trade.

“We aim to be pan‐African,” says Llewellyn. With banks’ withdrawal creating a huge need for capital all over the continent, it’s likely Ovamba will continue to spread through the continent. The challenge will be to grow while retaining the localised knowledge which makes it   successful.

As first published on Trade and Export News