/ 5 July 2019

Fintech fills the funding gap

Lifesaver: Dineo Skosana
Lifesaver: Dineo Skosana, owner of the Sandwich Baron in Hatfield, Pretoria, took a loan from Fundrr after her business had a few bad months and large financial institutions turned her down. (Oupa Nkosi/M&G)

If you think small business, chances are you’ll think new — and probably — risky. But not for fintech credit-provider Fundrr. It sees opportunity.

Its target market is businesses that have been in operation for 12 months and have turnover or an asset base of more than R1-million.

Fundrr’s co-founder and chief executive, Idan Jaan, says its clients are typically new businesses that have been turned away by traditional financial institutions. Loans are typically in the range of R20 000 to R500 000 and on an unsecured basis.

“The whole objective of Fundrr was to do unsecured lending because we wanted to have a turnaround time of no longer than 24 hours. We believe that a quick turnaround time is the basis on which we built Fundrr,” Jaan says, explaining that it is not possible to provide a secured loan in a short space of time.

The health of any business, big or small, is dependent on its ability to access sustainable and reliable financing but, according to a report released in late June by the Banking Association South Africa (Basa), small, medium and micro enterprises find it difficult to get funding.

The data shows that a combined total of 73% of small enterprises are left out in the cold by financiers. Fourty-four percent of those seek funding of up to R250 000, and 29% seek funding of up to R1-million.

The large divide between demand and supply of funding for small businesses creates a “funding gap” of between R86-billion and R356-billion, the Basa report said.

Fundrr, which itself has been in operation for only 12 months and is funded by angel investors, has so far provided loans totalling R7-million to small and medium enterprises.

The sandwich franchise owner Dineo Skosana, from Pretoria, is one of 60 small businesses that have received loans from Fundrr. Facing a debt of R150 000 in franchise fees by the end of April this year, Skosana approached Fundrr after being turned away from financial institutions.

“I had gone through bad months back-to-back and my bills actually went up. I was stuck between a rock and a hard place because I had to choose between paying salaries or paying head office its dues,” she says.

The 35-year-old took up Fundrr’s flexible payment plan for loans of three to 12 months. Clients can choose from daily, monthly or bi-monthly repayments.

“At first I didn’t know that we could pay daily. Because we are a cash business, I chose the daily option,” Skosana says.

Fundrr uses an internal process that collects 100 data points, including bank statements, value-added tax payments, lease agreements, social media presence and the company’s and directors’ credit data to determine its growth prospects and creditworthiness.

Companies with a low “Fundrr score” pay lower interest rates, while higher scores mean higher rates.

Zande Africa, formerly called Invoice Worx, is another fintech company challenging traditional modes of lending in an era of increased technological adoption.

The company was founded in 2017 by Siya Ntutela and Mdu Thabethe, chief executive and chief operating officer respectively, and aims to bridge the gap between spaza shop owners and fast moving consumer goods (FMCG) companies by providing finance to spaza shops.

The Euromonitor Shifting Market Frontiers Megatrend: Africa Rising report says spaza shops have a combined annual turnover of R7-billion.

Despite this large revenue stream, most spaza owners are unable to get credit from FMCG companies, in part at least because some owners remain unbanked.

“Informal business and semiformal business are actually ignored. They are ignored just because they can’t comply with the various things that are required when it comes to financing business,” Ntutela says.

Most informal traders do not keep up-to-date financial records or comply with the legislative requirements that are sought by financial institutions to access funding. Ntutela says financiers have to reimagine what products and services the country’s financial infrastructure offers to the informal sector.

“You have to find a creative way of underwriting that particular market or creating products more suited for that market. Financial infrastructure in the country was never built on the premise that there is going to be a Soweto with four million people living in it,” he says.

Zande provides cash and credit facilities to spaza shop owners in need of stock. Spaza shop owners requiring financing are required to provide proof of location, turnover, purchase history from their current suppliers and a copy of their identity documents.

Zande buys stock directly from manufacturers, which it distributes from its warehouses to spazas through its driver network.

“It actually works out cheaper because the driver doesn’t have the same cost structure that I have. We’re saving money and they are making money. They own the vehicle and they can pay themselves and their assistants,” he says.

Zande allows registered owners to apply for financing, check balances and make payments through their cellphones. The platform also allows for cashless transactions between suppliers and retailers.

The company negotiates trade discounts with suppliers on behalf of shop owners before goods are delivered. It has raised the line of credit with suppliers from 30 to 60 days. Repayment terms for shop owners are seven to 14 days and Zande does not charge any interest or mark-up on the products.

“We prefer not to charge interest. We want to deliver to the customer but who we want to charge are the big manufacturers,” he says.

Zande has a warehouse in Ermelo and another in Nelspruit and plans to open one in Orange Farm, south of Johannesburg, in the next three months.“The future of any shopping in South Africa is e-commerce. We are what Amazon is in America for the township. Society is changing. Our future is building the next e-commerce platform, particularly for the township,” Ntutela says

Thando Maeko is an Adamela Trust business reporter at the Mail & Guardian