Nigeria's new Banks and Other Financial Institutions Act (BOFIA) 2020, took nearly 30 years in the making. While criticised for being a 'mixed bag', some argue its presence could provide opportunities to investors in Africa.
Trade-tech solutions firm Ovamba plans to enter Nigeria, Mali, Sudan in 2019
Ovamba Solutions plans to enter Nigeria, Mali and Sudan this year, with a pilot project in Nigeria expected in the next 90 days, Viola Llewellyn, the company's co-founder and president, said in an interview.
The company’s aim, Llewellyn says, is to nurture the large African businesses of the future. At the nascent stage, she says, these businesses need “guard-rails” that traditional lenders are often unable to provide.
The short-term funding that Ovamba provides is sourced from investors such as GLI Finance in Jersey and high net worth individuals, including users of the Crowdcredit crowdfunding platform in Japan. The financing provided to companies is fee- rather than interest-based, enabling the company to be compliant with Islamic law.
According to the World Bank’s International Finance Corporation (IFC), sub-Saharan Africa has the world’s largest proportion of financially constrained small and medium-sized enterprises. Sub-Saharan Africa has 44 million micro, small and medium enterprises (MSMEs), of which 97% are micro-enterprises.
- Nigeria is by far the largest contributor with 37 million MSMEs. The financing gap faced by MSMEs in sub-Saharan Africa amounts to $331bn, according to the IFC report, which argues that new models are needed to tap into the potential returns and manage the risks.
Ovamba, which is based in the US, was founded in 2013. It started operating in Cameroon in 2014 before expanding into Côte d’Ivoire. The company provides startups with logistical support and supplies short-term capital for importing wholesale and retail goods and for exporting commodities such as coffee, cocoa and cashews.
The logistical support can take the form of warehousing and access to risk assessment algorithms. The company, Lewellyn says, is a provider of trade tech solutions rather than a fintech company.
‘Tooth and nail’
Technology and finance should not be siloed, Llewellyn says. “Frontier markets need a combination. It can’t just be one thing.”
- Banks, micro finance institutions and payment solutions providers have not shown that they can combine the two, she says.
- The company says its most successful clients are in the Fast Moving Consumable Goods (FMCG) and light manufacturing/infrastructure sectors.
Lewellyn wrote in January that “ill-informed policies, heavy-handed regulation, and prohibitive taxation could slow our progress and quell the inflow of much needed capital from external investors.”
The company’s main challenge “is and always will be politics and the governments that are afraid of technology, afraid of change, and lack appreciation of the value of Africa’s private sector and growing middle class.” Cameroon has a “difficult regulatory environment” meaning the company has had to fight “tooth and nail” to operate, she said in the interview.
The scale of the financing gap faced by African small business means that innovative approaches that combine finance and logistics need to be taken seriously by national regulators.