In December last year, Asaak - a Uganda-based mobile SME lender - announced that it had closed a $1.5 million Series Seed.
U.S.-based venture capital firm, Resolute Ventures - led the round which closed in November last year. Other notable investors included 500 Startups, Catalyst Fund, HOF Capital, and Social Capital.
Yet, less than a year since the announcement, the startup has opened up the second round of equity financing. That is according to Dylan Terril, Asaak’s Chief Business Officer.
In conversation with him, we talked about their fundraising plans. Though he declined to reveal the actual amount and other details.
“We started raising a few weeks ago [September,],” Dylan started, “[and] we should close by end of the year.”
Although they have raised institutional debt before, they are only looking at equity capital for this particular round. “We've secured some institutional debt recently, but right now we are focused on expanding the operations of the business and building product,” he said.
Many lending businesses have struggled when it comes to repayment. But, Dylan says that they are heading into the fundraising at a point when "repayment for loans is quite high."
Something he believes is aided by the fact that each loan is backed by collateral. Though, they project that in the future, their loans will be advanced based on credit scoring.
Founded in 2016 by Kaivan K. Sattar and Titus Opesen, Asaak has a full-time team of 26. This is distributed across San Francisco (USA), Kampala (Uganda) and Soroti (Uganda).
Kaivan and Titus founded the startup during their work through a partnership with Pilgrim Africa and Engineers Without Borders in Soroti, Uganda. At that time, they were supplying farming villages with agriculture machinery. During the tenure, they found out that many small-scale farmers were struggling to access credit.
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“While there was an issue of not having the infrastructure for farming, the real issue they saw was that farmers didn’t have access to credit,” Dylan says.
But, they also found out that the challenge wasn’t in Soroti alone. Hence the decision to spread out. “We realized that Soroti isn't the only place that needs a sustainable credit solution. There are other places and types of businesses that needed access to credit all over the country.”
Asaak’s business model revolves around charging a premium on the loans that they advance. They receive funds from institutional investors, at an interest rate, then advance these to the borrowers at a marked up interest. The difference is what makes up their revenue.
Although some mistake Asaak for a microfinance company, they say that they aren’t.
"As a lender in Africa, outside parties often mistake us for another microfinance solution. But we are a business lender backed by fintech,” Dylan says. Adding that "we are trying to distance ourselves from the 'microfinance'".
Currently, Asaak operates like a marketplace. This implies that investors can come in and advance loans to several businesses of their choosing. Although they are not looking to change that, the startup is also looking at raising its internal funds to finance those deals.
“We have partners in the U.S. and Europe that are interested in this type of marketplace,” Dylan says, “so we’ve capitalized on those opportunities.” Adding that they “are also developing an internal fund."
Having an internal fund makes sense. Not only can it allow Asaak to go into more riskier deals, but it also increases the margins they make per loan.
Asaak started out lending to small-scale farmers. In fact, Dylan says that "some of our clients have never taken a loan before. Yet, they have expanded lending to SMEs, that have the ability to absorb over $25,000. Dylan describes SMEs as those who "have grown tired with the traditional banking sector."
Currently, their loan average amount is around $4,000. And that it is partly because of the wide range of customers that they cater to now.
“We work with large-scale businesses that need UGX. 100,000,000 (about $27,000) but also work with farmers that need UGX. 500,000 (about $135),” he says. In fact, the smallest amount that one can borrow is UGX. 300,000 (about $80).
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The lending space in emerging markets is becoming crowded. In fact, many are starting to believe that it is already saturated.
In Uganda, Asaak’s competition ranges from fellow tech startups like Numida, already established microfinance institutions and banks to asset financing institutions like Tugende.
But, Dylan points out the ability to secure a large loan using their mobile app as their competitive edge. That way, he believes that Asaak can reach as many people in the country. This level of scale, of course, is hard for traditional lenders like banks to easily replicate.
“The idea behind Asaak was that we want to reach as many people as possible. We wanted to bring that to Uganda so that no matter where you are you can get a loan,” Dylan said.
Despite the competition, Dylan believes that there’s room for them not only in Uganda but in the neighboring countries too. “There's a lot of digital lenders in Kenya, but there's an unmet need for a fintech addressing the market for large, secured loans,” he said.
“In the short term, I would say we are focused on Uganda. But in the long term, say 12 months we are looking at other markets. Like Rwanda, Kenya, Ethiopia and more. We will be a pan-African solution.”