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Tech Driven Embedded Financing in Africa (2)
Continuing from the last post, J explained that their target borrowers are small to micro-sized businesses—those needing only $1–3 million a year in funding. These tech-enabled businesses are becoming increasingly common across Africa. Because of their widespread presence, geographic and sector diversification has become a key risk mitigation factor.
He pointed out that these types of small businesses are usually overlooked by traditional institutional investors—they’re too small to bother with. But that’s precisely why they’re profitable: they’re nimble, can grow fast with the right funding, and have the potential to reach the scale that institutions eventually will care about. The earliest stage is the hardest to support, but it also offers the highest return on value.
As for risk, J isn’t too worried about the default risk from these businesses. Why? Because he has access to operational data in real time. Performance is crystal clear, and since customer payments go straight into the platform’s accounts, it’s very difficult to falsify both the performance data and the actual cash received.
However, currency risk is what he watches most closely. The fund is in USD, while the loans are issued in various African local currencies. So said he’s built in a substantial buffer to account for forex volatility.
What about returns, timeline, and how to participate? We’ll cover that in the final part—coming soon!