‘Collateral is not the key to positive repayment behaviour,’ says CEO of 4G Capital

According to the International Finance Corporation (IFC), over half of Africa’s Micro, Small and Medium Enterprise (MSME’s) lack the finance necessary to grow. Wayne Hennessy-Barrett, CEO and Founder of 4G Capital, tells African Business how his micro-credit fintech firm has been able to provide innovative finance for entrepreneurs on the continent.

Since setting up in 2013 you’ve been able to expand from one Nairobi-based unit to all across Kenya. How would you summarise your journey so far?

We are now at an interesting inflection point where we can go from being a good business to being a great business. If we get it right we’ve got a set of products and services which the market has validated, including client-centred product design, great use of tech and data, and great people involved in the organisation. We have grown from a fairly modest operation to 70 units in Kenya and we’ve recently entered the promising market of Uganda. 

Our business focuses on providing unsecured working capital for MSME businesses on terms that work for them. So almost immediately, without collateral or security, we provide bespoke finance for their individual businesses. And that is the key to success because it protects our customers from over-indebtedness. It also gives them the working capital to buy inventory and ultimately take home far greater earnings than would otherwise be possible. They then repay us and repeat the process. In addition to our credit business, we also provide complementary business training which allows clients to learn how to best use credit. 

Our customer demographics are very interesting because 82% of them are female business owners, with the majority based being based in rural areas, and about 40% of our customers being in the youth demographic.  From our customer feedback survey, at least 96% of our clients use the capital for business purposes. The average client who took 4G credit increased their take home profit by 82% in the course of 12 months.

You have a staggering lending return rate of 94%. How have you achieved this? 

It really comes down to our central premise which is collateral and securitisation is not really the key to positive repayment behaviour. The name of the game is product alignment, which includes building a financial service that meets the customer’s needs. I began the company conceptually in 2012 without having had any experience of micro-finance, instead I walked around markets in Accra, Ghana, where I conducted informal market research of traders.

What is the tech-element of 4G Capital?

We use mobile-money, primarily M-PESA in Kenya, but our system can plug into any payment method. We are proud to be a mobile money provider because we think it is an enormous enabler of economic growth. Our two core products are UPIA and Kuza. The former is our backbone product that provides an unsecured loan to a micro-trader within 24-hours, and this is combined with the business training. The latter is an exciting new product where we have partnered with large scale aggregators and lenders, such as the International Fast Moving Consumer Goods (FMCG) companies so that we can provide a credit line for MSME’s.

Earlier this year you became the first financial institution to issue a tokenised cryptocurrency bond. Is this how you intend to fund your growth going forward?

We’ve made the case and demonstrated that we can take international capital pools, put them into frontier and emerging markets, and generate really solid risk adjusted yields while achieving transformative social effect. That’s an amazing proposition. We must now demonstrate that we can take local pools of capital, locally denominated, to put credit in the pocket of excellent local businesses in a way that would traditional be completely impossible, while delivering great local yields.

You don’t want to have all your eggs in one basket and you don’t want to be exposed to any particular concentration of risk. So the cryptocurrency bond gives holders of Ethereum or bitcoin the opportunity to purchase bond instruments in local currencies. We are not here to replace fiat currencies, instead, we support people in local economies to thrive.

Kenyan-based company Cellulant recently broke the glass ceiling of the amount raised by an African fintech at $47.5m. Just how big is international appetite for investing in fintech on the continent?

In general, fintech presents enormous opportunities. But technology will not turn a poor business model into a good business model. It’s the 21st century and so everything needs to be tech-enabled so there’s a little bit of a buzz around technology and we have to be pretty sober about the available opportunities. At the same time, I think that once the global economy realises that investing in fintech in Africa is a win-win situation, then things will take off.

Do you see fintech working in competition or cooperation with brick and mortar lenders?

Banks versus fintech is the wrong conversation, instead, It’s about how we can work together. So we’ve had some very exciting conversations with banks looking at how they can get funds from their balance sheets to people they couldn’t reach without fundamentally changing their business model. In my view, the conversation about banks versus telecommunication companies is a dichotomy. If you try to do everything at once you’ll be weak at everything. If you try to do something very well then you probably will succeed. So I think there’s a growing maturity to this realisation that we don’t compete with banks or telecos.

After Uganda and Kenya what are your next ambitions?

The opportunity is almost limitless in sub-Saharan Africa but the way to do it well is to execute carefully. So our financing plans are synced with our scaling plans and we hope to lend in excess of $40m over the next 12 months. That money will go back into the business to fund future expansion and investment. We are also looking at investing in technology, especially in terms of machine learning and AI to help develop the business.

Do you see any potential barriers to your expansion?

Mobile money has not expanded across Africa the way it should have because tax and regulation regimes in many parts of Africa stifle growth. Therefore we would really like to see governments enable digital technologies by pulling back on taxes and arbitrary regulations. Everything you can do to allow people to create wealth and create revenue they should be encouraged.

Photos by Claudia Gschwend.