Africa has the largest number of credit unions in the world, according to a 2021 report by the World Council of Credit Unions (WOCCU). Most of these unions lack the right technology to serve its over 44 million members on the continent due to expensive core banking structures, outdated legacy systems and fraud-prone alternatives.
In 2019, Kenyan fintech Kwara was launched to help credit unions (savings and credit cooperatives societies, SACCOs) in the East African country shift to digital platforms by providing them with its proprietary backend-as-a-service software.
The company also has a neobank app that allows members of partner credit unions access to additional services such as instant loans and third-party services such as insurance.
Credit unions are often created by people who share a common interest or members of an industry—like farmers or teachers—these individuals buy shares in the institution, save money and take loans. Due to their low-interest-rate loans and ease of accessing credit when compared to conventional banks, credit unions are popular in Kenya and across Africa.
About 9000 credit unions currently operate in Kenya—only 175 are licensed—with over 9 million members, according to WOCCU's 2021 report. In 2020, the total assets of licensed credit unions grew 13.5% last year to reach $5.6 billion, according to the Central Bank of Kenya (CBK).
To deepen its effort in the East African country, the neobank for credit unions has raised a $3 million seed extension from existing investors; DOB Equity, Globivest and Willard Ahdritz, the founder of Kobalt Music. New investors like One Day Yes, Base Capital as well as fintech executives including Mikko Salovaara, the CFO of Revolut also participated in the round.
With this extension, the company has raised its seed round to $7 million. Since its last round, Kwara has grown its clientele base to 120 from 50 at the end of 2021, maintaining 100% customer retention. The company is also operational in South Africa and the Philippines.
Aside from the seed extension, Kwara has signed an exclusive digital solutions distribution agreement with the Kenya Union of Savings & Credit Cooperatives (Kuscco), the national umbrella body representing SACCOs.
With this agreement, Kwara said it has gained connections to a pool of over 4,000 SACCOs for its banking-as-a-service offering. The company currently serves 85 credit unions.
As part of the exclusive deal, Kwara will also acquire Kuscco's subsidiary IRNET, a software company and provider for SACCOs, for an undisclosed amount.
"The rationale (of the deal) is clear, first it is an opportunity to generate leads and distribute our core product as fast, and to deepen our competitive moat. We are entering an exclusive partnership, which also means no other tech company will be able to market with Kuscco. They are stacking their bets on us but we have been able to prove that we can do it as we continue to grow," Kwara co-founder and CEO, Cynthia Wandia, said.