Improving The Quality of Fintech Startups in Tanzania

Written by Nice Charles Msangi

The article gives insights on Pesatech Accelerator highlighting the Business health check of the fintech companies enrolled in the program

In May 2022, UNCDF Tanzania and partners; Sahara Ventures, Enea Advisors, and Hindsight Ventures launched the PesaTech accelerator, an impact-centered accelerator program to support the growth and impact of fintech startups in Tanzania. The accelerator program identifies, assesses, accelerates, and invests in fintech companies with potential for exponential growth and grassroots impact. The fintech startup ecosystem in Tanzania is snowballing, with regional and international companies flocking into the country. Flutterwave is the latest addition. For years, the Tanzania telecommunications sector has been known for fintech innovations, part of the value-added services offered by the companies. Local companies such as MaxCom Africa and Selcom also played an important role in the growth of the fintech sector, especially during the early days of the ecosystem back in the early 2010s. Not until recently are we seeing more fintech startup companies emerging. The recent success of Nala, a Tanzanian cross-border payments company that pivoted from local to international money transfers, has fueled the interests and dreams of Tanzanian youths to build fintech solutions for the local, regional and global markets.

Crossing The Valley of Death

One of the biggest challenges facing fintech startups in Tanzania is crossing the valley of death, moving from ideas to working solutions. There is evidence of youths having ideas for different fintech products that can solve complex problems facing grassroots communities in Tanzania. The problem has always been how to develop, deploy and scale them. Several obstacles have hindered the go-to-market strategy of these businesses, including lack of talent to deploy enterprise-level products, regulatory issues, lack of seed financing to start, and barriers to entry due to the monopoly of banks and MNOs. The PesaTech accelerator, in strategic collaboration with ecosystem partners, is looking to address some of these challenges by offering business and technical support to fintech startups. PesaTech is a multi-stage startup accelerator program. The current stage of the accelerator program involved conducting the business health check of the fintech companies enrolled in the program. The companies that were assessed include; A-Trader, Fastapay, Mipango, Nderemo, Safari Wallet, Tausi, Afya Lead, Afrisolutions, Hatua Africa, Kikundi, BizzyPay, EvMak, Dawa Mikononi, Kilimo and Settlo

Enea Advisors, one of the implementing partners, engaged with 18 startups from the 20 startups that were selected for this batch of the accelerator program.

Learnings From The Business Health Check

The first step of the accelerator program was to conduct a diagnostic assessment whereby the selected businesses were assessed on investor readiness via a digital tool, InvestoRedo, and in-person business health checks conducted by Enea Advisors. The primary objective of the business health check was to assess the startups’ management and financial systems which we believe is key for growth.

The potential impact of these startups when scaled far exceeds the current economic benefits. The 18 startups that were assessed collectively generated USD 209,000 in the past year and planned to grow annual revenues to USD 237 million in the long run. In addition to this, the startups created 796 jobs while 9 out of 18 startups had at least one or more female founders, indicating the rise of female leadership in this subsector.

Some of the lessons compiled by Enea Advisors from the health check included;

Innovation is the key ingredient to scaling fintech businesses

Innovation is a driving force and lifeblood of every startup, considering how it affects every other aspect of their businesses. For some startup founders, however, coming up with the initial idea for the solution and improvising it to fix or update features is the most they do for innovation. As long as consumer needs evolve, products will also evolve, and it is rational for any business to keep up with these changes. However, adopting an innovative culture within an organization is more than having an evolving product. It involves creating a mission-driven team, striving for continuous improvement, and developing research and development capabilities to ensure the business stays relevant and adapts to changes as soon as they happen. In figure 3 below, we have modeled how innovation interacts with other aspects of the business.

Startups are focused on driving traction, but no projections to guide growth

Issues around numbers were also notable, with some startups struggling to articulate market size or profit margin projections. Some founders focus more on product functionalities, whereas those with fully-developed products are more inclined towards growing users and revenues. There is nothing inherently wrong with either of the two pursuits, but without proper milestones or benchmarks to steer these undertakings, startups are likely to miss the mark. While every startup interviewed would strongly contend that there is traction for their offerings, only a handful had proper market sizing to visualize their share of the pie and articulate tactics they have in place to secure the same. Likewise, not many startups have financial models handy to demonstrate the viability of their business models, an aspect most financiers would be curious about.

While positive margins are unlikely at this point, even for those startups generating some revenues, it is imperative to model scenarios that will drive the business into a profitable state to substantiate the business case. Without proper forecasting and budgeting, things are likely to be left to chance and ultimately hurt the scalability. Modeling will help startups envisage the resources they need to achieve set targets while giving potential investors a peek at what their investment will accomplish. Some startups have numbers, but the numbers are not well-thought-out, jeopardizing their potential to attract financiers. For instance, we observed target profit margins way below acceptable figures, which could be highly detrimental to startups’ positioning for investors. It is, therefore, crucial for startups to perform sanity checks to ensure projections are realistic and reflect the market outlook.

Basic policies will serve as the guardrails to guide optimal performance

To have innovation and financial frameworks that work, startups will require effective policies to govern their commitments. While founders are often overwhelmed with competing priorities, hindering the implementation of tasks that do not reveal immediate and tangible outcomes, having basic policies to govern day-to-day actions will ensure businesses scale on solid foundations. For example, most startups lack a basic HR policy, a vital tool to underpin and promote the company culture and produce desired outcomes. Likewise, some startups have basic policies but lack measures to ensure proper execution, affecting accountability towards set standards.

The next phase of the PesaTech accelerator is the technical Bootcamp which will involve the assessment of the technology-readiness of the businesses and engagement with key ecosystem partners to integrate the products. The technical Bootcamp will involve engaging industry experts from aggregation companies, regulators, banks, and MNOs. The technical Bootcamp is meant to help the fintech founders prepare to engage with ecosystem partners and reduce their barriers to entry, including technical difficulties