Branch, a Facebook-linked mobile phone lending app, has raised Sh200 million by issuing a commercial paper, The Silicon Valley start-up will use the funds to grow its loan book. Branch says it has disbursed Sh4 billion via mobile money platform M-Pesa since its Kenya launch in April 2015.
Centum-owned Nabo Capital was the arranger of the debt facility – using Branch’s loan book as collateral. The commercial paper was snapped up by high-net-worth individuals and fund managers, the tech firm said, “Demand for mobile loans is likely to increase as the caps are shrinking the supply of credit in many traditional avenues,” said Daniel Szlapak, director of Africa at Branch. “Growth is powered by the simplicity of the mobile app, coupled with the fact that collateral is not required. A loan can be applied for in seconds, whereas traditional processes take days,” Szlapak told the Business Daily.
The choice of Nairobi to raise capital for California-based Fintech underlines Kenya’s position as a regional tech and innovation hub, Branch declined to reveal the pricing of the paper, saying it was “issued at a modest premium to listed corporate paper.”
UKAid-backed consultancy FSD said the deal was a new frontier for Kenya’s mobile money markets. “Ground-breaking deals like this can chart a path for other domestic capital providers and entrepreneurs to follow”, said Tamara Cook, head of digital innovations at FSD Kenya. “If banks aren’t willing to intermediate funds, this deal shows how Fintechs and start-ups can go directly to the domestic capital markets to access the capital they need.”
To date, Branch has raised $15 million in equity and debt funding, mostly from global funds including Formation 8, Khosla Impact, and Andreessen Horowitz, an investor in Facebook and Airbnb. Mr Szlapak disclosed plans to raise another $50 million in both debt and equity to expand Branch to other markets. The branch opened shop in Tanzania last year. It started lending in Nigeria this year, The firm says its NPL ratio has dropped to five per cent from a high of over 20 percent during launch.
When we started the business in early 2015, default rates were over 20 per cent. With the introduction of cutting-edge machine learning technology, default rates have reduced significantly approaching 5 per cent, Branch said it lends out Sh400 million every month to its 350,000 customers, with loans capped at Sh50,000, and repayable in between one to 12 months. The interest rates range from 13.6 per cent per month and can drop to 1.2 per cent as a borrower builds a credit history.
