In Africa, the exact extent and size of the informal economy, which is economic activity that falls outside the regulated economy and tax systems, such as street vending or unregistered taxi drivers, is challenging to measure accurately. However, we can’t deny it is an integral part of several African countries and plays a crucial role in the growth of their economies.
For example, a colossal two-thirds of the Nigerian economy classifies as the “informal economy”, worth millions of dollars and largely cash-based. Research indicates that SMEs contribute 48% of Nigeria's GDP, account for 96% of businesses, and 84% of employment. With Africa having the fastest-growing middle class globally, it is anticipated to create increased demand for products and services from these SMEs.
Despite this, challenges persist that hinder the growth and development of SMEs in Nigeria and the African continent. The informal economy, which many are a part of, is predominantly cash-based, making it challenging to own and maintain a credit footprint. Most SMEs struggle with getting the necessary funding to scale because traditional funding options require a strict criterion that they struggle to meet. Applying for business loans takes a long time, and the process can sometimes be excruciating. As a result, there is a considerable financing need to the tune of $158 billion for the 40 million SMEs in Nigeria.
Though, even when SMEs get the capital, there is usually a negative feedback loop. They regularly fail to utilise the lender’s capital effectively and are likely to default on repayment because they access it too late following a long and disconnected lending process. In other cases, they fail to identify key growth aspects of their business that need funding and spend the borrowed capital inefficiently, including items with minimal impact on their growth.
This lack of access to financing and the mismatch between the need and what SMEs spend their capital on present a pressing opportunity for a solution that offers the credit fast and the right kind that meets their needs. Payhippo is on track to bridging this gap by providing loans to small businesses in Nigeria in under 3 hours - this is 21 and 90 times faster than digital SME lenders and banks, respectively.
The Future: Payhippo
Payhippo leverages artificial intelligence to identify creditworthy SMEs. It then disburses short-term loans in less than three hours, a record that remains unmatched by traditional banking institutions in the country. Over the past several 12 or so months, Payhippo has grown to service numerous clients by bridging the small business credit gap with its data-driven, faster, and fairer system of financing for SMEs.
The company looks at cash flows, creditworthiness, and value chain data to assess a business, giving it the unique ability to predict when a business will likely run out of capital or which products it needs to spend its borrowed capital on. Payhippo applies its credit scoring formula that uses different SME data to determine the value of loans to give out. The company also has a bank statement PDF parser that assesses a business’s cash flow needs and monitors capital usage. This gives Payhippo the unique ability to predict when a business will likely run out of capital or which products it needs to spend its borrowed capital on.
With this, business owners can build a Payhippo Score and access up to 3x their first loan offer funds. The loans are disbursed through mobile phones. The average loan disbursed by Payhippo is about $1,300, with the minimum loan being about $200. Payhippo has disbursed more than 5,000 loans since its founding in August 2019, valued at $7.5 million. Additionally, the company is growing at an impressive 25% month on month while maintaining a 97% repayment rate.
Affectionately self-identifying as Hippos, the company’s three co-founders have worked together before, and each has fintech and lending experience. Payhippo’s team consists of innovators and builders with domain expertise in the lending space.
Zach Bijesse, Co-founder/CEO - Zach is a former investment officer at Lydia and previously worked on growth for New York fintech Guidevine.
Chioma Okotcha, Co-founder/COO - Chioma holds a Masters of Public Affairs from Sciences Po with a background in public sector consultancy. She has consulted with the University of Oxford, Agence Française de Développement (AFD), and The Organisation for Economic Co-operation and Development (OECD).
Uche Nnadi, Co-founder/CTO - Uche is a Harambean entrepreneur who has previously served as the CTO of Seatjoy, a marketing platform. He also founded a software development non-profit, Enye.
At Future Africa, we are excited to be a part of Payhippo’s journey to build the future of SME financing. We welcome Payhippo’s team to the Future Africa community.