How Numida Is Using Alternative Data To Help Afrikan SMEs To Access Growth Credit

Mina Shahid is the co-founder and co-CEO of Numida, a financial management mobile application that uses cash flow and behavioral data to unlock financing for potentially over twenty two million African small businesses and enterprises.

When Mina, a Canadian-born systems engineer of Egyptian descent, starts talking about his startup, he does so with the enthusiasm and charisma of a startup co-founder—but he is also very philosophical, beginning with the history of his startup’s name: Numida. ‘Numida’ is creatively truncated from Numida meleagris — the Latin and scientific name for guineafowls. It’s commonplace for African families to domesticate guineafowls due to their excellent nutritional value. But because these fowls are wild birds, when they learn to fly, there is always the risk they could make away into the woodlands at the expense of the farmers’ investment in looking after them. To enable their domestication, their wings are clipped after hatching. Similarly, Mina believes that the wings of millions of small businesses in sub-Saharan Africa are clipped due to the enormity of challenges they face and thus never have the opportunity to take-off. Without a fair chance, many great ideas lie ‘comatose’ and, with the passage of time, are silently off-loaded into limbo. Such wasted potential!

Where It All Started

Ideas are a dime a dozen. Execution is everything. Such and many others are combat-inspired platitudes entrepreneurs love to use. However, sometimes ideas are executed as per the script, and things just don’t work out. Having worked with EWB Ventures, a Canadian seed-stage investment vehicle designed to cultivate talent and nurture early stage social enterprises in sub-Saharan Africa, Mina had firsthand experience working with disadvantaged communities.

“I was working as a consultant for the government of Ghana, at first, ” he says. “In 2012, we started a lending business in Ghana with a focus on agribusiness and particularly food security.” Despite the fact that these small businesses were the powerhouses of Ghana’s informal sector dominated economy, a major challenge they faced was a lack of cash flow data to prove their business’s profitability and creditworthiness. However, after two and half years of working hard at the project, the lending service didn’t pan out as envisaged. The Ghanaian economy was not faring well. They closed shop and moved on. But the challenge and lessons learned were the inspiration behind Numida.

“You cannot arrest an idea whose time has come.”Victor Hugo

“One thing I decided was that if we were ever going to do this again, we would do it differently,” Mina says. Through assiduous collection of data about small businesses, and with an engaged behaviour change programme for the non-tech savvy SMEs, they could hit gold. The best and most promising avenue would be to develop an app on a widely accessible mobile platform.

“Ben Best, Numida’s third co-founder and CTO, and formerly a co-founder of the lending business in Ghana, used the experience he gained together with me to begin building Numida.” Mina recollects.

They did take their swing. One of many swings. Perhaps an infinite number of them. They began with exploratory market research in Uganda, Kenya, and Ghana about small businesses and their potential, and what could be done differently to enable them to take off. According to their preliminary findings, Uganda offered great potential. They decided that Uganda would be it. In January 2016, the not-for-profit Financial Sector Deepening Uganda (FSD Uganda) supported them with an initial grant to build the first version of their product and pilot it with 1000 small businesses in Kampala. Coincidentally, a couple of months earlier in 2015, a survey conducted by FSD Uganda and Technoserve found that 75% of small businesses identified cost and access to finance as a major barrier. So Numida had a stronger case and more support. The pilot kicked off in earnest in March 2016.

A staff member demos the Numida interface.
A staff member demos the Numida interface.

Supplementary Or Complementary Solution?

A sheet of paper is arguably the greatest app that has ever existed. Fundamentally, businesses must create records for proof of transaction and for purposes of transparency, audit, and valuation, among others. Mina saw that verifiable records could also be used to extend loans to businesses, should the need arise.

For Numida this insight about records was a two-sided coin: it represented both a unique behavioral challenge (and threat) and a latent opportunity to effect tremendous systemic change amongst SMEs.

Millions of SME owners across Africa do not keep traditional, paper-based books or care to consistently document their accounts. The SMEs are deeply ensconced in informal settings, which never call for accountability or urgency, except when insufficient working capital suffocates them slowly and steadily to their unfortunate demises.

Numida, a financial management mobile application, is designed specifically for small businesses in Uganda that don’t keep financial data or record books.

It’s the first (true) Software as a Service for African small business.

But This Has Not Been Without Challenges

Whereas Numida wants to bring fun into the staid and boring and tedious bookkeeping process, many SMEs have shunned and continue to shun its offering—much as it is to their disadvantage.

Although user onboarding is done by the Ugandans on the Numida team, who understand the subtleties of language and market context, aligning the business owners’ attitudes to modern and novel ways of bookkeeping is where the conundrums begin.

Inherent suspicion toward new practices within the small business owners community in Kampala is a big challenge, and Numida is the first product of its kind on the market.

“If people are viewing us in a skeptical way because we are new product and service, it’s definitely harder to do user acquisition,” Mina says.

Damaging Effects Of Uganda’s Two-Lane Internet

Beyond the trust issues that incessantly frustrate their activation and user onboarding programs, a major issue, and one often overlooked by industry experts is the absence of net neutrality in much of sub-Saharan Africa. Numida’s CTO, Ben Best, recently wrote a passionate plea calling for net neutrality in Uganda and explaining the negative impact of its absence on their business.

Basically, there are two classes of mobile internet in Uganda (popularly known as MBs—Em Bees—or mobile data). The first is the full-open access internet similar to that enjoyed in many parts of the developed world. The second is called a “social bundle” and only provides access to Whatsapp, Twitter, and Facebook (dubbed ‘WTF’), and more recently, Snapchat. Social bundles, which are aggressively marketed by the telcos, are about four times cheaper than the full open access internet data bundles. Both types of access are sold as 24-hour sessions.

For a business owner to use the Numida app, he or she has to go to the Google Play store and download the application. However, the majority of the first time users fail to do so along the way because the app cannot be downloaded using social bundles, which many of them religiously subscribe to. Data can be entered offline, but periodic saving and syncing require access to the full internet as well. The social bundles are so pervasive that for most Ugandans, the ‘WTF’ Internet essentially is the internet. Because of this, small business owners don’t understand it when they cannot download the Numida app or save data. You cannot blame them.

“We’re in the market where the largest multi-billion dollar tech companies have an unfair advantage over startups,” Mina decries. “This disincentivizes innovation and makes it very hard for local startups like Numida to compete.”

Telecommunications companies have long been complicit in such dubious preferential treatment of the internet through coy marketing campaigns promoting the subsidized social bundles.

In retrospect, however, it is clear that many of today’s large tech companies were successful in large part because they were built on open standards and systems and architectures.

But with the proliferation of social media, the calls to Numida to embrace and build off social media platforms could not be any louder. Besides the big tech giants have lately upped their ante by promoting themselves as strategic and supportive deployment platforms. Mina is not particularly impressed with this suggestion: being a third party on a platform whose terms and conditions are not inclusive of Numida’s goals and prospects. “Everybody is being forced to build bots and services for the Facebook Messenger platform, ” he says, “What happens when Facebook decides that Uganda is no longer a market that is interesting to them? What products and services will Ugandans use then, in this unfortunate event?”

Entrepreneurs and staff members talk inside the Numida office in Kampala, Uganda
Entrepreneurs and staff members talk inside the Numida office in Kampala, Uganda.

Reality Check

Mina says working with the telcos is inevitable, especially in the future when Numida has gained significant traction. And in this case, it would be the numbers of small business owners who’d be religiously using the app to keep and monitor their records that would provide a double win for them and for the telcos in the long run.

While potentially a dangerous model to emulate, telcos in Uganda have formed close alliances with sports betting companies because there is a mad dash for the services they offer: Quick gains from gambling (at least the promise of) on text-enabled mobile devices using mobile money wallets, without a worry of fees to connect to the internet. It’s about the numbers both telcos and gambling companies love to see on their bottom lines.

In fact, Numida product manager, Christopher Stern, has been thinking about how to include game mechanics common with sports betting in their app, too. This comes after having recently attended the Digital Skills Observatory (DSO) workshop in Nairobi, Kenya organised by the Mozilla Foundation. The workshop was a product of a year long study on the experiences of a growing class of first time Kenyan smartphone users and their interaction with digital financial services. One key takeaway from the study was the quick uptake and pervasiveness in East Africa of gambling and sports betting via mobile phones.

However, Numida is fundamentally different because their mission calls for social impact on top of creating value for their users and ensuring the sustainability of the app itself—unlike telcos and sports betting companies which are concerned only with their bottom lines. The task at hand is to make using the Numida app as enticing as the sports betting apps. How can Numida leverage the mechanics that endear the rich and poor to sports betting, while maintaining their social mission? For example, if they promised small businesses quick rewards such as instant loans, or celebrated good record keeping performance according to some sort of leaderboard, would they have a better shot at success? Perhaps. Would these perks incentivize the users to religiously commit to the mundane task of digital book keeping? Perhaps. These assumptions and more only show that developing a product market fit is no mean feat.

New Pair Of Wings

Nobody is documenting the cash flow data of small scale businesses and in this data Numida sees a gold mine. To be able to grow and scale, however, Numida will need a pair of new wings. Mina confesses that the grant from FSD Uganda was a critical enabler at the stage before building a product. He explains this is because private investors do not just invest their capital in the company but also become advisers. Your problem becomes theirs too, and they are usually invested for the long haul unlike many other kinds of investors.

Mina says that they have been lucky with their grants but nonetheless there is no such thing as an unconditional grant—every grant has some sort of condition. It gets worse when this grant money is inflexible—it could be a potential killer, more lethal than the lack of access to finance in the first place. The product cycles for tech projects are built on the premises of rapid iterations and pivots whenever the need arise. However many grants are structured in a way that doesn’t allow dynamism and agility. Failure to adhere to the terms of reference could mean failure to unlock a cheque to enable further product development.

“If you’re trying to build a private business, it’s dangerous to rely on grant money because then, there is a lack of incentive to actually develop a business model that works—and is sustainable.” Mina says.

Working for the “dual bottom line” is extremely challenging; Numida carries the yoke of rendering social and economic impact in one shot. While on the other hand, for users to unlock value, they must invest the time in entering data on their mobiles, day by day, to fully harness the benefits of the app. It’s unlike their usual daily dopamine infested bread—Whatsapp and Facebook. And sports betting.

This article is republished with permission from Madeira Interactive Technologies Institute, conducting a study of social tech ecosystems in sub-Saharan Africa, commissioned by three UK foundations: Comic Relief, Nominettrust and Indigo Trust.

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