A colossal two-thirds of the entire Nigerian economy is classified as the ‘informal economy’, worth millions and largely cash-based. The sector creates significantly more employment opportunities than its formal economy, with a large proportion of the population operating as small to medium-sized enterprises (SMEs). The informal economy is predominantly cash-based, making it difficult to own a credit footprint. This is also partly because a limited means of formally identifying people has resulted in an absence of traceable data and financial records. Most Nigerians (and Africans in general), find it difficult to access formal financial products or services for this reason.
For startups, not being able to obtain financing due to the inability to demonstrate their credit history can severely hinder their growth; unless they have wealthy family or friends that can support their venture until they establish a revenue stream. Africa’s small business sector remains largely underserved and underbanked and easing this pain point has become a business opportunity for the continent’s social entrepreneurs.
In today’s AfriTech XYZ conversation, Chioma Okotcha, one of the founders of PayHippo, tells us how the company is helping SMEs in Nigeria access funding to help them grow their business:
“One of the key issues we’ve come across is that most SMEs struggle with getting the necessary funding to scale or grow because traditional funding options require a strict criteria that they struggle to meet. Applying for business loans can also take a long time and the process can, at times, be very painful.
“We experienced these challenges ourselves as founders and we wanted to do something about it. We launched PayHippo with our own money and with support from friends and family. Our struggle to scale our business due to lack of adequate business financing is what really gave us the idea of PayHippo.
“We also feel that there needs to be a shorter turnaround time in accessing funding - especially for businesses selling goods who need to maintain adequate stock levels to meet their customer demand levels.”
This is an important point. For some SMEs, a long lead time getting hold of much-needed cash could be the difference between fulfilling a large new order and growing or going bust and business lending by traditional institutions is hard to find. Their collateral requirements can exclude a huge number of the heartbeat of the economy and, while there are increasingly more options from tech innovators, PayHippo feels that their credit-scoring process still limits some users.
For businesses who have yet to establish a credit history, PayHippo is positioned to be their entry point into their capital financing journey. Their commitment to helping founders get exactly what they need is ensuring a steady return of business every month. Chioma sees this as a sign of good growth for the businesses they are helping.
A bespoke service for better customer journeys
Over the last eight months, PayHippo has grown from 2 clients to 21 clients by bridging the small business credit gap with its data-driven, faster and fairer system of financing for SMEs.
With investment in any business largely dependent on its ability to demonstrate proof of concept, this AfriTech XYZ participant has gained huge traction relatively quickly with its seamless provision of hassle-free loans. Chioma further tells us:
“One of the main considerations we explored is how technology is accessed and used by people in Nigeria so that we can really understand how easy it would potentially be for customers to use our platform. We see this stage of our business as a chance to build a great relationship with our clients. Most of our clients have said they haven’t had the best customer experience in their efforts to access business financing. This is a great chance for us to change this experience for them and differentiate ourselves by really listening to them and understanding how we can best meet their needs when scaling their business.”
Getting to know their clients on a deeper level allows PayHippo to tailor products to clients’ needs better. This process of co-creation with customers is made possible through their automated products and by not being sector-specific.
This is paying off for the young startup as the level of financing PayHippo distributes to SMEs has grown in the short time it has been in operation. To meet growing demand for their service, the team needs to scale its operations and build on its technology. The Afritech XYZ ecosystem offers startups like PayHippo access to a comprehensive resource to help take its operations to the next stage.
PayHippo believes in showing startups more trust than traditional banks would do to help them scale and grow and this is proving to be a winning strategy. For many small-scale startups or businesses who struggle to access financing, making an allowance for its non-existing credit history is invaluable in the informal economy. Not only is this service a real shift in democratising access to business finance, it’s becoming a real viable business opportunity for social entrepreneurs.