Alternate lending is on the rise across the African markets in 2023

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Throughout Africa, alternate lending is growing into prominence at a rapid rate. The new-age financing platforms have provided consumers and small businesses with easier access to capital, which was previously unavailable through traditional banking channels. Many African consumers are turning to alternate lending to improve their lives and invest in their communities. Small businesses, on the other hand, are seeking credit to establish and grow their businesses in the region.

Among the reasons that have led to the growing popularity of alternate lending in Africa is the fact that traditional banking is limited. For most Africans, access to financial products and services is inaccessible through traditional channels. Based on the World Bank data, only 43% of African adults have formal bank accounts. Lack of infrastructure, higher costs, and stringent lending criteria has resulted in higher unbanked and underbanked percentage. As a result, alternate lending has emerged as a popular channel to access credit in the region.

Currently, there are several players operating in the fast-growing segment across African markets. Some of these players include Lulalend in South Africa, Lendable in Kenya, and Float in Ghana. Many new startups have emerged in the space over the last few years, and these platforms, coupled with other fintech firms operating in the lending market, are driving the competitive landscape.

The market is poised for an accelerated growth trajectory over the next five years in most African countries. This has also resulted in venture capital and private equity firms showing interest in the alternate lending market in Africa. Firms like Lulalend have raised multi-million-dollar deals from global investors in 2023.

• Lulalend, for instance, announced that the firm had raised US$35 million in a funding round, which was led by Lightrock. Other investors such as DEG, Triodos Investment Management, International Finance Corporation, and Quona Capital, among others. also participated in the round.
• In South Africa, Lulalend is seeking to reduce the credit gap by providing working capital to small and medium-sized businesses. The firm has its own proprietary credit scoring algorithm and other alternate data sources to offer short-term loans to businesses.

The funding raised by Lulalend will enable the firm to further expand its loan book and bring new solutions to the credit-hungry market. Furthermore, the firm is also planning to roll out the digital banking platform in South Africa. Over the years, Lulalend has partnered with various businesses, including Vodacom, Yoco, and Takealot. These collaborations were part of the credit distribution strategy. Going forward, PayNXT360 expects Lulalend to forge more such alliances as embedded lending is growing in popularity globally.

In South Africa, Lulalend is competing with well-established players like TymeBank for market share. TymeBank, in 2022, acquired Retail Capital which provides lending services to small and medium-sized businesses. Over the last ten years, Retail Capital has extended more than R7 billion in working capital to over 50,000 businesses in South Africa. Therefore, the addition of Retail Bank will further strengthen TymeBank’s presence in the alternate lending market in 2023.

In Nigeria too, the alternate lending product has been gaining strong popularity. Several players are operating in the segment, and more are entering the market to tap into the growing credit demand.

• Kredete, for instance, launched the AI-powered lending platform in Nigeria in April 2023. The firm had forged strategic alliances with more than 25 financial institutions and also secured funding from investors like Techstars. In the beta phase of its launch, the firm attracted more than 70,000 users, showcasing that there is a strong credit demand in Nigeria.

Notably, the Nigerian alternate lending industry is projected to grow at a rapid pace over the next five years. Consequently, even global players are seeking to expand their geographical presence by launching their products and services in Nigeria. Yabx, in November 2022, announced that the firm is entering the Nigerian market. In addition to its lending products, the Netherlands-based firm also launched other fintech products.

The firm, notably, entered into a strategic collaboration with various African banks to develop a profitable lending portfolio in Nigeria. To determine customer creditworthiness, the firm is using data analytics and machine learning, and artificial intelligence algorithms. The presence of new startups and global players in the Nigerian market is, therefore, expected to drive competitive landscape and innovation over the next five years.

Furthermore, venture capital and private equity money is also projected to increase in the African alternate lending market from the short to medium-term perspective. Overall, PayNXT360 maintains a robust growth outlook for the alternate lending market across Africa over the next five years, and the rise of alternate lending channels will keep reducing the credit gap in the market.