NextGen fintech custom built for agent networks: Why we invested in Kuunda
Written by Dan Block — Investment Principal, Mercy Corps Ventures
It’s late afternoon. It’s a long holiday weekend. It’s election day. You walk to the corner kiosk down the street to top up your airtime or load some mobile money for the evening festivities. And you hear the words: “Closed. No float.” Anyone who has ever been to an M-Pesa agent in Kenya, or an MTN agent in Nigeria, or a Movistar agent in Latin America, or a retailer in Pakistan knows the frustration of being turned down by agents due to lack of float late in the day, when the banks are closed.
The team at Kuunda know the problem all too well, having worked at Zoona, one of Africa’s first mobile-money platforms, as well as Vodacom, Tigo, Airtel, MTN, and Orange.
In Kuunda, they have built a truly revolutionary plug and play product that allows any agent, anywhere, at any time, to access a point-of-sale (PoS) loan via an instant overdraft. This allows agents to be open for business all day, and no longer need to turn down customers. Agents can bypass dependency on slow and inefficient banks. Users that rely on such last mile agents can perform critical transactions throughout the day. And the numbers speak for themselves. Over 30,000 monthly active agents use Kuunda once per workday on average, with ethically priced loans that create economic value for all parties involved, and have default rates under 0.75%. But Kuunda isn’t stopping with mobile money agents. The team understands the criticality of agent network infrastructure across many basic services — from banking to energy access to logistics to consumer sales. They have built a flexible product that can be deployed in dozens of markets and value chains with little frictional implementation costs, driving increased efficiency across the value chain.
Market Need
There are 4.8 million active mobile money agents as of 2020, and the global authority on the space, GSMA, predicts that there will be a 150% growth in active agents over the next 3 years to meet the exploding global demand for digital financial services.
However, informal agents, despite their critical role in facilitating economic activity in emerging markets, and the high proportion of transaction volumes they process in the communities where they work, are some of the least financially served. Compared to formal micro, small & medium enterprises (MSME) that can access bank loans, microfinance, and new fintech products to finance working capital needs, micro-merchants and agents lack the business formality or scale to access such commercial loans. As a result, they are forced to take on expensive loans from informal money-lenders, extractive digital fintech consumer loans that leave them economically worse off than before, or to simply close their business early when faced with working capital constraints.
The IFC estimates that 65 million enterprises, or 40% of formal MSMEs in developing countries, have an unmet financing need of $5.2 trillion every year and a potential latent demand for finance of $2.9 trillion from informal enterprises.
Access to ethically priced financing, designed for the rapid turnover cycle of micro agents, allows agents to stay open for business longer, perform more transactions, and grow their incomes. Productive-use agent loans don’t just benefit the agents. As the backbone of economic activity in their communities, agents are at the center of critical activities to support the livelihoods of their clients — they allow families to send and receive remittances, to load their phones so they can make important calls and connect with loved ones, to pay school fees, manage utility bills, pay for taxis or purchase agri inputs, hire workers or make a deposit on a project.
When an agent is active, their community is connected.
When an agent closes shop, so too does the economic activity around them become slower and less efficient, or, in extreme cases, grind to a halt altogether.
The Kuunda Solution
Kuunda leverages data analytics to provide precision liquidity products for agents within existing agent networks, beginning with mobile money agents. This is done through their software as a solution (SaaS) in which credit analytics, loan pricing, and disbursement mechanisms are embedded into agent platforms — such as M-Pesa products — so that agents are able to seamlessly and instantly access loans to facilitate transactions for clients that the agent would otherwise be unable to perform.
For example, say someone comes to an agent at the end of the day with $20 of cash in hand that they want to transfer to a sick family member to pay for urgent medical costs. Late in the day, the agent might not have $20 of float in their mobile money account to send. Ordinarily, the agent would have to turn down the client, wait until the bank opens the next day to top up their mobile wallet, and then begin transactions anew. With Kuunda, the agent can access an instant $20 overdraft line and make the payment on behalf of their client after hours. The client is able to make the critical transfer to a relative in need. The agent and mobile network operator (MNO) are able to earn additional income from performing the transaction. And Kuunda earns interest on the loan, which is automatically repaid the next day when a female business owner withdraws some cash to make needed purchases in town before attending to her stall.
Kuunda partners with agent & retailer network operators — such as M-Pesa (Tanzania) and Oneload (Pakistan) — to offer the service to their mobile money agents, thereby increasing agent retention for Safaricom while growing transaction volumes on the network. On the other side, Kuunda leverages financing partners to provide the short-duration loans, meaning they have an asset light and scalable model that can quickly expand in multiple markets without regulatory hurdles or liquidity needs. As in the example above, Kuunda’s ethical credit algorithm is designed to only offer loans for products where the agents earn positive commissions, (e.g., the value of the commissions earned for a transaction facilitated by a Kuunda loan exceeds the interest cost the agent must pay out on the loan). So, let’s say an agent earns $1 in commission for the $20 transfer facilitated above. Alternative lenders often charge agents more than $1 in interest to obtain the financing, which causes the agent to lose money on the transaction. Kuunda ensures that their interest rate is less than $1, meaning that each transaction performed by the agent is profitable. The company’s credit mechanism reduces default rates on their flagship product to an industry leading 0.3%.
Crucially, Kuunda’s tailored credit solution drives value for all actors:
- Mobile money agents benefit from increased income by being able to perform revenue-generating transactions that they would not otherwise be able to perform were it not for the on-demand loan.
- Agent networks, such as MNOs, benefit from increased transaction volumes through their network, greater income, and improved agent retention.
- Financial institutions that provide financing through Kuunda benefit from access to a large and growing segment of the digital economy which they are traditionally unable to access due to their slow, manual, and outdated credit origination processes.
“Liquidity is the biggest constraint to growth for agents & Micro-SMEs in emerging markets. The lack of access to financial liquidity in the market often leads to 1) store closures, 2) dissatisfied customers, 3) lost opportunities and 4) business stagnation. These informal micro-merchants are often cash-based and undocumented, which means their access to appropriate financial products and systems is constrained. Kuunda’s vision is to provide a platform where Financial Service Providers and Kuunda provide access to the long tail of the informal retail sector with both float financing and working capital facilities that, up till now, has largely been out of reach of the formal financial sector.”
Andrew Milne — Co-Founder and CEO
Investment Rationale
Kuunda’s vision is to build financial identities for micro retailers to access non-extractive credit when they need it most, on average, boosting their incomes by 25%. The company has scaled rapidly, achieving impressive product market fit, without sacrificing on performance.
With over 30,000 active users each month and having disbursement over $100 million to agents who are using Kuunda an average of 1x per day, and with default rates under 0.75%, Kuunda’s performance is simply unparalleled in the industry.
The asset light approach enables Kuunda to be multi-market and multi-product early on, and the team has the sector expertise to forge the necessary partnerships that can take Kuunda’s platform pan-Africa and beyond, over the next 6 months.
Kuunda’s impact is also robust and multi-layered. Take Maria Francis Kihanga, one of Kuunda’s agents in Tanzania. Maria lives and works in the Nane Nane district of Mbeya city, where she owns a mobile money kiosk and also sells phone accessories and feature phones. Last year when COVID-19 hit Tanzania, Maria thought it would be very bad for business.
“I was so worried, you know, because I thought people wouldn’t be leaving their homes and I would have less customers. But actually, my business has gotten better because people are afraid of getting the virus by handling lots of money.”
As COVID-19 has accelerated mobile money adoption, agents with overdraft capabilities are able to better serve the market by performing more transactions than their peers. Currently, about 17,000 M-Pesa transactions are facilitated by Kuunda’s overdraft product daily.
“There is nothing else like it. Every mobile network gives loans, but they are so expensive people can’t pay them back in time and so they end up just throwing away the SIM and hoping they won’t be found. I like it very much. It has taught me discipline; every time I use [the overdraft product], I automatically make more money and the more I use it, the higher my limit is so I can borrow more.”
Conclusion
At Mercy Corps Ventures, we have invested in many micro-retailer and agent networks and know their critical role in emerging communities. We know the pain points these agents face — despite large short-term financing needs, they are out of reach of the formal financial sector, and lack appropriately priced loans tailored to their business needs. And we love embedded fintech plays. However, we have also shied away from credit-as-a-service (CaaS) models previously, due to the challenging sales cycle.
For us, Kuunda breaks the mold. The team impressed us with their traction, partnered with premium customers in multiple markets, and developed a sophisticated, enterprise grade embedded loan product that outshines competitors. With Kuunda, we are excited to have made our first bold bet in CaaS, and are rolling up our sleeves to drive Kuunda’s success in this challenging space. If Kuunda can prove out a CaaS model that works, they could be the framework and tool used to provide embedded finance across emerging markets, in value chains far beyond mobile money agents to logistics, agro, gig workers, distributed energy, and beyond. That, truly, is a huge opportunity.
