Top 4 Challenges Ugandan fintech startups face

Fin-tech startups are primarily finance companies that are embracing modern technology in order to solve problems and provide a more inclusive service while making profit. Uganda has a number of startups in this category that have dared take on the challenge. It has even been predicted that funding towards African fintech startups will keep increasing significantly each year.

But this is no walk in the garden - there are a lot of hoops to jump through and new challenges to overcome every step of the way. Today, we try to delve into some of these challenges and suggest solutions to some.

  1. Trust

Trust is a hard commodity to come by in any business. It is even harder for fin-tech startups because they are primarily involved with money. Earning the trust of people is a long journey that requires patience but only if you have a great product, are consistent and committed to the long term. Even when you have checked all these boxes, you still have to address yet another form of mistrust that comes from Ugandans' inability to use products developed by their own because of a predisposition that they are not secure or up to the task.

Fin-tech is about handling people's money and when it comes to money, people take time to trust you. -  Ivan Mworozi, co-Founder: Akiba

Ivan Mworoza, co-founder of Akiba had an idea for mitigating this challenge. He suggested that fintech startup founders in Uganda should focus on securing reputable partnerships.

Therefore, startups in the fintech field should ensure they craft partnerships that'll help them establish credibility which quickly converts to trust among the user-base. Some of the partnerships might be with Telecoms or banks. This is no easy task. If it was though, everyone would do it.

2. "Greedy" Investors

There hasn't been so much external investor attention for Ugandan fintech startups. This means the startups have to dwell on the local investment. Now, we all know that the investment climate in Uganda is still virgin and the few who give it a try, make sure they de-risk their investment as much as they can.

In the words of Ivan Mugere, a former Tony Elumelu Fellow and founder of Poketi.net, local investors want to take more than they invest. In otherwards, the deal is usually one-sided. This quickly demotivates the startup founders who feel, at the end of the day, that they're simply working for the investor.

Our advice here is simple; Startup founders should make sure they make as many consultations with people who have been in a similar situation as them before. They should also do a quick background check on the investment record of the individual or company that would like to invest in them. This will enable them make the best decision.

3. Small market size

For most startups, the bigger the market size one can gain access to, the more likely one is to succeed. This is one of the reasons Nigerian startups have an edge over other those in other African countries. Numbers.

With a population of over 180 million, Nigerian startups stand a much better chance of getting a good share of their potential target user-base that would keep them profitable. The odds are different for a country like Uganda that is nearly 5 times smaller.

Just imagine having a potential userbase of over 170 Million at your disposal compared to less than 40 Million? Even scaling a startup outside Uganda proves to be costly. One would talk of the East African community but its benefits still remain on paper. One would have to incur costs for each market they opt to enter. Let's say you would like to operate in Rwanda, Kenya or Tanzania, you'd have to register in each of the countries.

This could be one of the reasons investors in Ugandan startups try as much as possible to derisk their investment. One of the solutions to this strategizing by considering the model which Israel startups employ. Identify a need in a big organization and build a solution for that specific need, then position yourself for acquistion. Here, your solution doesn't have to be limited to the Ugandan market, it can scale as far as you wish.

4. Finances

The 2016 startup funding report by Disrupt Africa revealed that South Africa, Kenya and Nigeria were the top three destinations for tech investors in 2016, both in terms of numbers of deals and total amount of funding. The song of lack or insufficient funding for Ugandan fintech startups has been sung for now over 5 years but there seems to be much changing.

A few startups, like Poketi.net, have had access to both local and regional investment. But where does that leave the majority of others? The solution to this urgent issue still remains a mystery. Though one would advise Ugandan fintech startup founders to start networking outside their circles and areas of comfort.

There's a saying that if you want to catch fish, you go where the fish is. Now is the time for fintech startup founders to look at the world beyond Uganda and hence spread their wings.

There are many more challenges but we feel these are more pressing. In case you think there's one or two challenges we left out, leave them in the comments.

Digest Africa

CONTACT

info@digestafrica.com

Digest Africa Technologies Ltd
Ntinda Complex,
Block B, Level 3 Ntinda,
Kampala, Uganda

© Digest Africa Technologies Ltd 2019.
All Rights Reserved.