Small businesses across Africa have continually struggled to access loans due to a lack of collateral and credit history as well as high-interest rates doubled by harsh criteria for lending eligibility at traditional financial institutions.
The lack of access to finance has a huge negative impact on the growth and performance of these businesses. In South Africa, SMEs make up about 98.5% of all businesses, positioning them as a critical force in the nation's economy.
Lulalend is a South African fintech that is helping to bridge the $20 billion annual SME credit gap. Founded in 2014 by Trevor Gosling and Neil Welman, the company uses an online application process and internal credit metrics—a proprietary credit scoring algorithm and a diverse set of alternative data sources—to provide short-term loans to small and medium-sized businesses that are often unable to obtain working capital.
To enhance its efforts in the South African market, Lulalend has secured $35 million in a Series B round led by Lightrock, with participation from new investors, including the German development finance institution DEG, Triodos Investment Management and Women’s World Banking—alongside lead investors from its $6.5 million Series A round: The International Finance Corporation (IFC) and Quona Capital.
"In what is an increasingly challenging investment landscape we are excited to have finalised our series B funding round," Trevor Gosling, co-founder & CEO of Lulalend, wrote in a statement seen by Benjamindada.com. "We are determined to ensure that this investment ultimately benefits the more than 2 million formal and informal SMEs in South Africa whose financial needs remain grossly underserved."
Lulalend offers between $250 to $300,000 worth of loans for 12 months with a 1.5-3% monthly interest. The South African digital lender, which has distributed "hundreds of millions of dollars" in loans, said its non-performing loan ratio is about 4-5%.
"The capital we have raised will allow us to service the surging demand for the fast access to working capital we offer businesses, as well as accelerate the rollout of Lula, our new digital banking offering for SMEs," he added.
According to Gosling, "the support that business owners get through existing banks is not at the level that it should be, and that’s our core focus. We are not deviating and looking to do a consumer product, it’s all completely focused on the SMEs and their needs". Lula already has 20,000 clients on the waiting list, he said.