When Yoeal Haile started Aspira, a lending service, in 2017, he wanted to give Kenyans more choice about buying stuff on credit. The business eventually grew to a point where it offered over $1 million in loans to customers monthly. Still, Haile noticed a bigger underserved opportunity on the other side of the spectrum: small and medium businesses (SMBs).
Retailers on the Aspira platform, like most African businesses, struggled with cash flow problems and lacked access to affordable credit to grow their businesses. While banks use rigorous credit policies and don’t care much about small businesses, particularly 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 SMBs 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 Africa-focused investors: Quona Capital, Breega, CRE Ventures, Ingressive Capital, RaliCap, Unicorn Growth Capital and Sherpa Ventures.
“During my time at Aspira, when I was working with about 100 retail partners, I noticed that a lot of them struggle to stay on top of the cash flows and then manage their finances,” Haile told TC on a call. “Most of them were shut out of access to the traditional credit market. Ultimately, with nobody serving them, we saw this as an opportunity to shift from doing consumer finance to doing more SME and business finance.”
Sava highlights two specific pain points businesses confront around spend management and reconciliations. One, businesses don’t have tools to enable them to control spending. Two, business owners and their teams spend a lot of hours engaging in manual record-keeping and reconciliations and lack sufficient data to lend prudently.
Haile said his co-founders also encountered identical issues while running their past ventures. And after brainstorming possible solutions, they settled on using the spend management model pioneered by the likes of Brex, Ramp and Jeeves to launch Sava.
“The spend management model is a way not only to bring the tools that small, medium and large businesses need to run their financial operating system in the background. But also to be able to capture the data that gives you a full 360 picture of the true financial health of a business,” CEO Haile commented. “This is a problem globally, but more so in African markets, given that the banks are hesitant to lend in general. When you don’t have a dataset to help support and underwrite these businesses, that combination leads to businesses being shut out and the credit gap continuing to grow yearly. So that’s what we’re trying to solve with what we’re building.”
A functional credit system and high penetration of credit cards form the backbone of corporate spend and expense management platforms. It’s why the most prominent players operate in the U.S., Canada and Europe, and even Latin America. Africa, on the other hand, has a low credit card penetration, which might be one of the reasons why spend management platforms from the continent lag behind their global counterparts. In 2017, the continent had a 4% credit card penetration rate.
So, in addition to the credit bureaus, spend management platforms such as Sava are required to use other mediums to evaluate consumer and business credit viability. Africa is home to some of the highest mobile money penetration and has decent bank account usage. As such, Sava, which is yet to launch, says it combines bank accounts, mobile wallets, payment and accounting integrations all in one platform.
“If you look at it from a business standpoint, you have bank accounts, mobile money accounts, payroll, invoices — these are a variety of data points that most financial institutions don’t have access to. And the thing about our spend management platform is that it brings together these different pieces into one software,” commented Haile.
With this, Sava says it’ll help businesses control spending using spend management tools, reconcile accounting records, digitise expense reimbursements and integrate budgets and actual cash flows.
However, the South African fintech still plans to provide credit cards to clients’ employees as it will form the basis on which the company provides liquidity to its business customers. “What we’re doing is converting these debit cards to credit cards, which banks do not offer to businesses,” the chief executive said. “We will give businesses access to 30 days of credit for free, and having access to a flexible, revolving overdraft facility or working capital loan is a huge gap for thousands of businesses on the continent.”
Sava intends to make money on interchange fees on credit card transactions, subscription fees when businesses access its platform and interest income from loans issued. It also has to upsell clients on some third-party financial products like insurance.
Haile said the spend management platform will launch its beta in South Africa in Q3. South Africa is the continent’s biggest total addressable market, where formal businesses have large distributed sales teams and have a more functioning credit system to handle spend management solutions. Sava also plans to launch in Kenya in Q4, and with time, it’ll look to expand into other markets like Nigeria and Egypt. Across the continent, Sava faces competition from upstarts offering comparable and vertical services such as Tiger-backed Float, Y Combinator-backed Lenco and Boya, Prospa, and Brass.
