When Yoal Haile started Aspira, a lending service, in 2017, he wanted to give Kenyans more choice about buying stuff on credit. The company eventually grew to a point where it was offering over $1 million in loans to customers each month. Still, Haile saw a greater opportunity at the other end of the spectrum: small and medium-sized businesses (SMEs).
Retailers on the Aspira platform, like most African companies, faced cash flow problems and lacked access to affordable credit to grow their business. While banks have strict credit policies and don’t care much about small businesses, especially those without any local credit history or track record, informal lenders act as loan sharks to the detriment of these businesses.
That said, there are still many lending services that SMEs can access in the market. Earlier this year, Haile and his co-founders Federico Von Bary Landesmann and Kolawole Olajide decided to add to that list by starting sava, the South African fintech that has raised $2 million in pre-seed funding. The pre-seed round included several African-focused investors: Quona Capital, Breega, CRE Ventures, Ingressive Capital, RaliCap, Unicorn Growth Capital and Sherpa Ventures.
“During my time at Aspira, working with about 100 retail partners, I noticed that many of them struggle to track cash flows and then manage their finances,” Haile told australiabusinessblog.com during a phone call. “Most of them had no access to the traditional credit market. Ultimately, with no one serving them, we saw this as an opportunity to move from consumer finance to more SME and corporate finance.”
Sava highlights two specific pain points businesses face around spend management and reconciliations. First, companies don’t have tools to control spending. Second, business owners and their teams spend many hours on manual administration and reconciliations and lack data to borrow cautiously.
Haile said his co-founders also encountered identical problems while running their previous ventures. And after brainstorming possible solutions, they decided to use the expense management model developed by Brex, Ramp and Jeeves to launch Sava.
“The spend management model isn’t just a way to put the tools small, medium, and large businesses need to run their financial operating systems in the background. But also to capture the data that gives you a full 360° view of a company’s true financial health,” said CEO Haile. “This is a problem globally, but especially in African markets, as banks in the are generally reluctant to lend. If you don’t have a dataset to support and insure these companies, that combination results in businesses being foreclosed and the credit gap continues to grow year on year. So we’re trying to solve that with what we’re doing build.”
A functional credit system and high credit card penetration form the backbone of business spending and expense management platforms. Therefore, the most prominent players are active in the US, Canada and Europe, and even in Latin America. Africa, ohOn the other hand, it has low credit card penetration, which may be one of the reasons why spending management platforms of the continent are lagging behind their global counterparts. In 2017, the continent had a credit card penetration rate of 4%.
So, in addition to the credit bureaus, expense management platforms like Sava need to use other media to evaluate the viability of consumers and businesses. Africa is home to some of the highest mobile money penetration and has a decent bank account usage. As such, Sava, which has yet to launch, says it combines bank accounts, mobile wallets, payment and accounting integrations all into one platform.
“If you look at it from a business point of view, you have bank accounts, mobile money accounts, payrolls, invoices – these are some data points that most financial institutions don’t have access to. And the great thing about our spend management platform is that it brings these different components together into one software,” said Haile.
With this, Sava says it will help companies control spending using expense management tools, reconcile accounting data, digitize expense claims, and integrate budgets and actual cash flows.
However, the South African fintech still plans to issue credit cards to customer employees as this will form the foundation upon which the company provides liquidity to its corporate customers. “What we’re doing is converting these debit cards into credit cards that banks don’t offer to businesses,” the CEO said. “We will give businesses free access to 30 days of credit, and having access to a flexible, revolving overdraft facility or working capital loan is a huge gap for thousands of businesses across the continent.”
Sava plans to monetize interchange fees for credit card transactions, subscription fees when businesses access its platform, and interest income from loans granted. It also needs to sell customers on some third-party financial products, such as insurance.
Haile said the spend management platform will launch its beta in South Africa in the third quarter. South Africa is the continent’s largest totally addressable market, where formal companies have large distributed sales teams and a better functioning credit system to handle expense management solutions. Sava also plans to launch in Kenya in Q4 and with time it will expand to other markets such as Nigeria and Egypt. Across the continent, Sava faces competition from new entrants offering similar and vertical services such as Tiger-backed Float, Y Combinator-backed Lenco and Boya, Prospa and Brass.