Digital lending platforms have become an easy and swift alternative source of credit for microenterprises and individuals overlooked by traditional banking institutions. These platforms have turned into a lifeline for millions of underbanked and demand will keep growing, pushing the value of the digital lending platform market in the Middle East and Africa to reach $2 billion in the next five years, recording a four-fold growth since 2021.
This is the market opportunity Ghanaian fintech Fido plans to tap as it explores new markets in East and Southern Africa, sustained by fresh $30 million Series B debt-equity funding. The new capital includes a $20 million equity injection from global impact investment manager BlueOrchard and Dutch entrepreneurial development bank FMO.
Initially launched in 2015 by three Israeli entrepreneurs — Nadav Topolski, Tomer Edry and Nir Zepkowitz — to offer loans over mobile phones, Fido has over the years introduced other products, including savings, bill payments and smartphone financing, to grow its revenue streams.
The fintech is among a sizable number of companies in the African digital lending space, including venture-backed Branch and Tala, that are tapping mobile technology and alternative data sources, like mobile money transaction histories, to offer instant micro-loans to individuals and small businesses that are often unable to access credit from formal banking institutions.
Unlike lending apps, banks often loan to active customers, require collateral and involve lengthy processes that include paperwork. This has made micro-lenders an alternative, but expensive, source of capital even for small businesses, which Fido CEO, Alon Eitan, says “are the driver of economies, especially in sub-Saharan Africa, yet they get so little tools to grow.”
“A majority of the population in sub-Saharan Africa are either unbanked or underbanked, and for a lot of the customers that come into our ecosystem, we are probably their first-ever interaction with financial services. We take them from zero financial footprint to the point where they’ve built a whole financial backbone within an ecosystem where they can get credit, insurance, make savings, buy mobile phones and do their business,” said Eitan.
Fido offers every loan product with embedded insurance and it plans to include additional covers targeting its business customers. This will include climate insurance to cover borrowers in the agriculture sector from extreme weather events such as drought and floods, as well as tradesman insurance.
The fintech’s customers access loans of between $20 to $500, while businesses get higher amounts, depending on their needs, nature of the enterprise and credit score. The loans are repayable within six months, and attract interest of between 7% and 12%. Eitan says Fido’s default rate is below 4%, which he attributes to the company’s credit score system.
“We are able to deliver these industry best rates by a combination of mission-critical AI models across the loan life cycle. From our acquisition model, which scores new customers based on mobile device data and other alternative data, through our fraud models and AI collection treatment models,” he said.
To date, Fido claims to have served a million customers, 40% of whom are small businesses, and extended over $500 million in loans across Ghana, where it is said to have countrywide coverage, and Uganda, where it has served 50,000 customers since launch in December last year.
As a point of comparison, when it raised $30 million in 2022, Eitan told TechCrunch that Fido had underwritten 1.5 million loans, valued at $150 million, to 340,000 customers in Ghana. It was only just preparing to enter Uganda at that time.
“Our hope is that by some time early next year, we will have crossed a billion in total disbursement and the idea is to use the new funds to then grow further and reach more customers…and have genuine impact on them,” he said, adding that the business has been profitable the last four years.