Bitbond and Bitpesa recently announced a new initiative offering small business loans to Kenyans, Nigerians, Tanzanians, and Ugandans. In a bid “to improve access to financing for SMEs in Africa,” the move allows Bitbond borrowers in the four countries to “withdraw loans into their mobile money or bank account in as little as 20 mins,” according to Bitbond’s announcement.
The partnership connects borrowers in Africa with the German peer-to-peer (P2P) lender, Bitbond, using their mobile phones. Bitcoin-based mobile payments provider, BitPesa, provides the loan within minutes.
“This means that a small business owner from Kenya can receive loan funding from investors from all over the world via Bitbond.”
- Radoslav Albrecht, Bitbond Founder & CEO
Calling itself “the first global marketplace lending platform for small business loans,” Bitbond has been offering P2P lending with bitcoins since July 2013. The growing business connects individuals and fixed-income investors from around the world with small businesses, and claims the title of the very first German regulated financial services provider that uses blockchain technology.
The tech firm has since raised funds on three separate occasion, including €200,000 in 2014, €600,000 the following May, and another US $1.2 million in February this year. The funds have allowed the platform to facilitate over 1,650 loans to small businesses in over 120 countries so far.
Loans on the platform can be denominated in US Dollars, Euros or directly in Bitcoin. To fight borrower fraud, the service only lends to registered businesses, which are subject to credit checks. Fraud is a problem faced by every company in the industry, including BTCJam. The risk management process appears to be helping the platform stay on the right side of regulators too, a problem that forced BitLendingClub to close late last year.
If a borrower fails to pay back a loan, Bitbond has a routine that gets increasingly aggressive, advancing from gentle reminders over various platforms to passing the loan to international collection agents after 90 days.
“The debt collection agency can report the borrower to a local credit bureau and bring the case to court.”
Bitpesa was the first Bitcoin startup in Africa, having launched in 2014, and is now one of the largest. While the company initially focused on remittances, their services have been expanded to include international trade, Business to Business purchases, and freelance worker payments. The platform uses Bitcoin to transfer funds between 85 countries, while focusing on four main African markets. Recipients get local currency to their mobile, or bank account, within minutes.
The company has also had a few fundraising rounds, including $1.1m in 2015, and a $2.5m round earlier this year. The funds have allowed the Bitpesa platform to attract 6,000 users, and facilitate over 17,000 transactions.
However, the startup ran into issues with mobile money giant SafariCom in Kenya. SafariCom has been targeting this mobile rich user base for almost a decade. The company provides a mobile-phone based money transfer and microfinancing service launched in 2007, called M-Pesa. In March 2013 Safaricom reported that M-Pesa had 15.2 million customers, with revenue from the service increasing 22.8% during 2014.
SafariCom also provided services to Bitpesa. The telecoms giant suspended its services last November, stating that Bitpesa dealt in bitcoin, and should obtain approval from the Central Bank of Kenya before the services could resume. Kenyan courts sided with Safaricom on the basis that Bitcoin is not considered money in the country, so Bitpesa is now not allowed to use the words “money remittance” or “money transfer” in its business there.
“It would appear to me that Safaricom was justified in ensuring that its own licence was not ultimately questioned or put in jeopardy.”
- Justice Joseph Onguto
The new partnership may provide Africans with sorely needed financial freedom. The 2016 African Prosperity Report report found that small to medium size enterprises (SMEs) on the continent are, "priced out of the market by tight credit constraints and excessive and inappropriate government regulations."
Marubeni Research Institute states that only 24 percent of SMEs have an outstanding loan: "The main reasons for financial exclusion are low and volatile incomes, lack of proper documentation, complex financial products and services, illiteracy, and inadequate infrastructure combined with the long distances to financial institutions."
However, a report by International Finance Corporation (IFC) shows that 96 percent of Nigerian businesses are SMEs, a core market for the new platform. SMEs account for around 53 percents of businesses in the U.S. while it’s around 65 percent in Europe. "SMEs are a very important part of the Nigerian economy," states Professor Banji Oyelaran-Oyeyinka.
The International Journal of Small Business and Entrepreneurship Research outlines several factors holding back “micro, small and medium enterprises” in Nigeria. The report reveals that only 4.2 percent of 17.2 million MSMEs have been able to access loans or overdrafts from financial institutions while new entrants or start-ups find it practically impossible to access funds from banks.
Kenya, too, is another major economy desperately in need of SME loan assistance. A June 2016 joint report, by FSD Kenya and Growth Cap, states that banks don't understand the needs of SMEs and therefore do not best serve them. Consequently, "There was a significant use of informal sources of funding for establishing the initial businesses, ranging from using credit terms from suppliers through to moneylenders and chamas, from friends and family to the entrepreneur's’ own funds."
The report states that an informal, cooperative community pool called a Chama is used by many to invest savings in East Africa, and is particularly popular and prevalent in Kenya. A study commissioned by Invest in African (IIA) and Strathmore Business School states that money from family members and personal savings are the most popular sources of capital and finance.