The Startups Solving the Working Capital Challenge for Africa’s Small Businesses

From self-employed freelancers to the local shops and restaurants that are the cornerstones of so many communities, small businesses in emerging markets across Africa must maintain enough liquidity to take advantage of growth opportunities or tackle challenges.

And in the absence of cash on hand, these merchants often use alternative credit options and business loans to fill the working capital gap and ensure smooth business operations.

Read more: FinTechs Think Big to Help Africa’s SMBs Find Working Capital

But these solutions aren’t always optimal, which is why a new wave of African startups is pioneering the delivery of innovative lending platforms across the region to help small- and medium-sized businesses (SMBs) and solopreneurs maintain sufficient liquidity.

Sector-Based Credit for Gig Workers

In a region with high unemployment rates, where many people struggle to generate steady income, the gig economy framework is reshaping African labor markets. And as it matures, technologies are being developed to build on the basic gig ecosystem to better meet the needs of independent contractors.

One such technology is ImaliPay, a working capital solution for gig workers that allows them to pay for the things they need to stay in business using a buy now, pay later (BNPL) credit model.

For example, a gig worker in the transport sector could use the ImaliPay app to finance the purchase of fuel or spare parts by spreading the cost in installments, instead of having to make the full payment upfront.

Tatenda Furusa, the company’s co-founder and CEO, recently told PYMNTS that the gig economy is “the future of work globally” and that ImaliPay is positioning itself to be “the de facto financial sidekick and social safety net partner for gig workers across the continent.”

And as workers around the world adapt to an evolving gig economy, the technology they use is evolving too. Among the new gig toolkit, solutions that aim to bridge the working capital gap will be essential for the financial wellbeing of Africa’s gig workers and are much needed if the sector is to thrive.

Digitizing Community Lending

Besides the gig economy, a related but slightly different version of Africa’s micro-entrepreneurial spirit can be observed in the millions of mobile money agents facilitating the flow of currency between hard cash and the continent’s mobile money wallets.

Sometimes operating in rural locations where most people have a mobile money wallet yet are unbanked, agents don’t always have access to institutional credit lines, leading some merchants to turn to friends and family in times of need.

Related: Community Loans Plug Funding Hole for Africa’s Mobile Money Agents

For Femi Iromini, founder and CEO of Nigeria-based startup Moni, this sparked a desire to bring the community lending model into the digital age. Starting out as a WhatsApp group for mobile money agents connecting borrowers with lenders, Moni has grown and expanded beyond the initial local community targeted to now provide small loans to mobile money agents across Nigeria.

While banks have traditionally perceived the microloan market as high risk for very little gain, Moni leverages social trust and group responsibility to mitigate the risk of default. In fact, as Iromini recently told PYMNTS, the firm has been able to achieve an impressive 99% repayment rate since launch in 2021.

BNPL for SMEs

As ImaliPay demonstrates, the BNPL lending model can provide an alternative credit framework in the absence of a cash loan or a borrower’s inability to repay credit in full, on time.

Nigerian FinTech Duplo is one of the business-to-business (B2B) startups driving growth in the BNPL space.

Read more: BNPL Is the Working Capital Bridge for African SMBs

Instead of giving businesses cash, Duplo co-founder and CEO Yele Oyekola told PYMNTS that their B2B BNPL solution can finance the payment of a vendor invoice on behalf of a business, after which the merchant will pay back based on the terms offered.

Duplo has established relationships with several Nigerian wholesalers and is building a network of retailers who are then able to purchase from the wholesalers, with Duplo acting as a credit-providing intermediary. This way, retailers can retain their cash and keep their liquidity up, and wholesalers can offer BNPL without taking on any of the risk themselves.

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