The informal business sector plays an integral part in the economy of every nation. In Kenya, the sector contributes 33.8% of the country’s GDP and it also provides 83.4% of employment outside of small-scale agriculture.
However, access to financing remains the main impediment to growth for these micro and small businesses. The inability to access credit from formal financial institutions due to lack of structure, accounting books, and assets that can be used as collateral, also deepens this challenge. In Africa, local fintech startups like Zanifu, Pezesha, Numida, and Pennee have introduced products that are tailored to the financing needs of the MSMEs.
In Kenya where Zanifu is headquartered, there is a $19 million funding gap for small businesses, the fintech startup has created platforms for manufacturers, distributors, and retailers that ensure seamless ordering, payment, tracking, and fulfillment.
Retailers borrow through Zanifu’s loan app, where they upload information that includes historical purchase data. The retailers are then assigned a credit limit, after its algorithm scores them, within six hours of signing up. Retailers have up to a month to pay back the loans, which attracts an interest rate of 5%-6% every month.
The startup has provided credit to over 13,000 micro-businesses and has served 500 distributors following the expansion of its customer base. Zanifu says it records about a 99.2% repayment rate.
“In our first product, we only lent retailers to help them expand their business, but we found out that distributors have a similar problem,” says co-founder and CEO Steve Biko.
With the goal to extend financing to distributors, Zanifu has raised $11.2 million pre-Series A in debt-equity funding led by Beyond Capital Ventures and Variant Investments. Founders Factory Africa, AAIC Investment, Google Black Founders Fund, and existing investor Launch Africa also participated in the round.
“We have decided to go deep into Kenya. We are focusing on serving more micro-SMEs and also getting more distributors into our fold, and ensuring the capital we are dispersing is actually generating returns for these businesses and helping them grow. So that’s really how we’re looking at it for now. We will go to other markets once we get to profitability,” Biko added.
Earlier this year, Zanifu obtained a digital credit provider licence from the Central Bank of Kenya. The fintech plans to extend its offering to other financial services like insurance and build tools, to, for instance, help businesses manage inventory, and do bookkeeping.