How 4G Capital Empowers MSME Via Affordable Working Capital

4G Capital is a financial services technology company, supporting Kenya’s MSME sector since 2013. It provides over 80,000 customers access to unsecured, affordable, working capital and essential business training to grow their business sustainably and improve their livelihood.

The firm began with one branch located in an informal market just outside Nairobi. Six years later, this has grown to 92 branches. 86 across Kenya and six in Uganda.

To date, 4G Capital has disbursed 600,000 loans totalling USD 78 million to entrepreneurial business owners while maintaining a market-leading repayment rate of 94 per cent. On average, the firm’s customers have increased their revenue by 82 per cent in over 12 months something which Wayne Hennessy-Barret, CEO of 4G Capital notes has been hinged on their customer-focused approach. StartUp Magazine East Africa captured his thoughts together Chiara Van Oekel, VP of Customer Success at 4G Capital in the following excerpts.

1. What did you set out to achieve on the outset? 

Answer: Wayne Hennessy-Barrett, CEO

Our vision has been to digitise the bottom of the pyramid by providing a suite of financial services and business tools to connect the African informal economy to financial services that they’d typically be excluded from. MSMEs across Sub-Saharan Africa face significant funding challenges despite counting for more than 38% of GDP. Our work should not only create wealth for this underserved segment but ensure economic development is sustainable.

2. What areas of interest do you target in view of the above?

Answer: Chiara Van Oekel, VP Customer Success

The 4G Capital Customer Value Proposition seeks to overcome inequality and financial exclusion, especially for those in rural areas (~ 58% of our customers), the urban poor, women (~75% of our customers) and youth.

The MSME Finance Gap on the African continent is over US$331 billion and over US$24 billion across our core markets (Kenya & Uganda), this is a gap that we are determined to bridge.

3. Why do you think you are best suited to serve the regional market?

Answer: Chiara Van Oekel, VP Customer Success

Our unique combination of ‘touch and tech’ – where our financial service products are delivered by a combination of technology and on the ground relationship officers – allows us to combine instant credit scoring – directly at a person’s site of business, with close customer support.

We take pride in driving a relationship-based service. Our customers tell us this is invaluable, and it reflects in our 80% repeat rate and a Net Promoter Score of 82%, double the industry average.

We were honoured to receive recognition by the International Finance Corporation (IFC) for our client-centric approach last month when we were awarded Silver for Responsible Digital Innovator of the year at the SME Finance Forum.           

4. Besides financing, what else do you offer your customers as a way of empowering them?

Answer: Chiara Van Oekel, VP Customer Success

Each 4G Capital customer receives a bespoke financial literacy and business training programme which enables them to use our credit wisely and effectively. The training is delivered through a progressive syllabus designed in partnership with our customers via our mobile apps and in person trainings in the field. Extreme low levels of financial literacy and business acumen stand in the way of enterprise development and sustainability (75% of MSMEs rely on themselves or on family and friends for financial knowledge). Our Mwalimu (Swahili: Teacher) service hopes to remove this obstacle for our customers.

5. From your experience, what would you say are the biggest impediment to the growth of local MSMEs?

Answer: Chiara Van Oekel, VP Customer Success

The largest impediment is access to capital. It is almost impossible for MSMEs to access credit without high collateral and data requirements. Most rely on family and friends to drive operations (72% of MSMEs rely on family for capital). Shortage of funding is the main reason for closure of business (accounting for 30% of closures).

Additionally, due to the informal nature of many of the businesses, our customers are inherently vulnerable to numerous threats and shocks. This is why we have developed a new micro insurance product, currently being piloted in Kenya, to increase the financial resilience of our customer base.

6. What can be done to avert the above?

Answer: Wayne Hennessy-Barrett, CEO

We believe that the industry, both the traditional financial institutions and modern day app based lenders, should build products that are proven to be economically beneficial for customers, taking into consideration their business cycles. Guidelines need to be delivered and upheld by a robust regulatory environment. We are fortunate in Kenya and Uganda where we benefit from forward thinking regulatory policy and the advanced mobile money infrastructure.

7. Have you faced challenges? If so, how have you mitigated them?

Answer: Wayne Hennessy-Barrett, CEO

Our challenge has been to secure access to affordable local currency investment for onward lending, we are now in talks with a number of institutions who should make this possible.  We are also challenged by the high level of regional demand for our services; each country is unique in its protocols and regulatory requirements; therefore, we deploy the necessary patience and build meaningful relationships and establish partnerships in the countries we wish to serve.

8. Can you mention some of emerging trends on your line of business?

Answer: Wayne Hennessy-Barrett, CEO

We are observing the increase in partnerships between traditional banks and Fintech companies in a bid to develop non-traditional credit scoring systems to reach the informal unbanked population. This is exciting as this demographic is Africa’s most untapped resource. The size of the MSME finance gap across Africa is huge and requires collaboration across the entire financial ecosystem.

Secondly, we are pleased to see increasing attention being given to client data privacy. Upholding client protection and increasing trust between consumers and providers is vital to ensuring the industry has a positive impact. 4G Capital, together with its partner, the Smart Campaign and B Corp, are drawing upon deep understanding and experience to create a set of standards that define Client Protection Principles that meet the needs of customers and the industry.

9. Going forward what can we expect from 4G Capital?

Answer: Wayne Hennessy-Barrett, CEO

Through diligent research and development and customer focus groups we are looking forward to introducing a range of new services in 2020, including micro-insurance, mobile money management and a digital business toolkit which connects customers with the online economy. We plan to increase our footprint across the continent; while focusing on expanding our operations in Uganda, we are looking to launch operations in Ghana and South Africa within the next 12 months. We are on target to positively impact one million people by 2020.