Africa’s a big place. With over 1.3 billion people spread across 54 countries, Africa accounts for 20% of Earth’s land mass. Yet, with $2.58 trillion in nominal GDP for the continent, its economy is relatively small. However, Africa’s $6.36 trillion GDP PPP (purchasing power parity) tells a different picture when we analyze African lending startups: a dollar goes a lot farther, almost 3x farther.
So, when we see that the 3 largest lending startups in Africa have collectively raised over $600mm, the scale of their operations in Africa and other emerging markets is much more vast than one would typically imagine when comparing against US or European startups. Yet, the landscape is very fragmented and not as easy to standardize or scale.
These three linear lenders have raised a lot of debt capital in addition to their equity raises, but they deploy and lend all the debt capital themselves. This model is opposed to marketplace lending startups, where the capital is lent by third party lenders. Two marketplace startups are the fourth and fifth most well-capitalized lending startups in the region.
For example, Kenya is a leading African country for lending startups, but outside of the startups in this country, the rest of the lending startups’ operations are widely fragmented and spread out across different pockets of the continent. This kind of geographic variability is often best initially handled in a linear fashion, rather than with a marketplace.
This might explain why one of the co-founders of Kiva.org, one of the original P2P lending marketplaces in Africa, founded in 2005, is now the founder & CEO of one of the biggest linear lenders in our report.
This is not to say that the lending marketplaces won’t have their time to shine.
The challenge is that the P2P model is very difficult to scale for marketplaces. Lending marketplaces need fintech and alternative lenders to act as more scalable sources of capital. The fintech and alternative lender landscape in Africa isn’t yet as robust as it is in some other regions, but the number of fintech lenders is growing very quickly.
As more linear lenders get funded, the lending marketplace will have more sources of supply in fintech linear lenders looking for a little extra income. There’s also a large and fragmented ecosystem of Microfinance Institutions (MFIs) who can provide another source of funding for lending marketplaces.
Ultimately, the opportunity for a lending marketplace is vast. There’s still a $360 billion credit gap in SME lending in Africa today. We will likely see several regional winners emerge over the next five years, which will almost certainly include some of the strong contenders you will find in our landscape.
In this report we look at the most prominent lending startups in Africa. We split them into two main business models – linear lending and lending marketplaces. Linear lending refers to the source of funds – usually from one or very few institutions, whereas marketplaces originate their lending capital from many investors – both peers and institutions.
Filed under: Platform Innovation | Topics:
Platform DesignRead more
Winner Take AllRead more
Winner Take AllRead more