Microloans: How local start-ups are taking the battle to investors

The demand for and opportunities that exist for loan sharks in Kenya are boundless. This has seen all sorts of lenders crop up in corner shops in estates and major town centres. Their advertisements are nearly as impossible to miss as the waganga ones.

Informal lenders once ruled the short-term lending sector, but in the last couple of years, the market has become skewed. Formal lenders have got involved and shifted the focus to mobile-based lending applications.

The biggest players are either backed by formal lenders, such as CBA (M-Shwari), KCB (KCB M-Pesa), Equity Bank (Equitel) and Co-op Bank (M-Coop Cash), or backed by foreign-based venture capitalists, which is where businesses like Tala, Branch and Saida fall.

Mobile lending

Los Angeles-based Tala is financed by foreign venture capitalists that include Artha Indian, Bam, Collaborative Fund and Data Collective.

Branch International, which is based in Silicon Valley, recently received Sh955 million from Andreesen Horowitz, a venture capital firm that’s also based in Silicon Valley, while Khosla Impact Fund and Formation 8 put in Sh140 million.

American seed accelerator YC Combinator finances Saida, a mobile lending app that was co-founded by Kyale Mwendwa and Kenneth Ngetha.According to a recent Village Capital study, more than 90 per cent of funding for East African start-ups goes to expatriate founders, with most early-stage investors in the region being foreigners themselves.But Kenyans are not known to shy away from the challenge of deep-pocketed investors, and are determined to play in the microloans sector, despite the odds.

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