Category Archives: Rwanda

EAVCA: Fintrek explores Fintech opportunities in East Africa

This week, the East Africa Venture Capital Association (EAVCA) with Intellecap Advisory Services released the Fintrek – which explores fintech opportunities in East Africa, new frontiers in fintech (defined as firms using technology to deliver financial products/services or capabilities to customers or others firms) and fintech investments in East Africa.

Asia Pacific and Africa have been harbingers of mobile payments and that is transitioning into fintech now. The Fintrek report notes three underlying factors driving fintech uptake as:

  • (i) the use of alternative data to generate credit takings of the unbanked (and deliver services to them cheaply e.g no need for bank branches),
  • (ii) peer to peer networks (decentralized collaboration, payments across borders, unregulated) and
  • (iii) the emergence of nontraditional players (telcos, wallets like Google Pay & Apple Pay, e-retailers like Amazon)

smartphones offer fintech opportunities.

Regionally, Kenya is seen as a leader in the region owing to its levels of deposit penetration, deep financial sector penetration, and smartphone ownership (at 44% compared to less than 10% for Tanzania Uganda Rwanda and Ethiopia). Kenya is where most fintechs are setting up, and Kenya-based fintechs have raised $204 million between 2000 and 2017 which is 98% of the funding to the region.

Funding: In terms of funding, fintechs are still in early stages as seen in the small deal sizes: seed funding provided 47 deals (averaging $447,000) and 60% of all funding was to impact areas renewable energy/off grid lighting and health care (microinsurance). Five companies M-KOPA, Off-Grid Electric, SunFunder, Angaza, Azuri) have raised $345 million (through debt and equity) accounting for 55% of the funding between 2010 and 2017. Another finding was that while 53% of all funding between 2010 and 2017 was from venture capital funds, their average deal size  ($6 million – e.g. from Apis, Madison Dearborn)  is lower than those of corporates ($15 million – e.g. from Stanbic, Commercial Bank of Africa) and foundations ($10 million – e.g. from Calvert, Emerson, Omidyar Network) deals.

Fintechs needs a balance of debt and equity investments to grow, but they are struggling to get debt financing (mainly bank loans). Fintechs in East Africa had debt-equity ratios of 1:1 compared to 3:1 globally, indicating they have capacity to absorb more debt but are not doing it. The EAVCA report cites one of the funding challenges as investors want proof of traction while fintechs need working capital to demonstrate proof of concept, lack of funder knowledge about local markets, East Africa fintechs don’t look like what foreign investors expect, currency fluctuations make it had to raise debt and there is a lack of fundraising skill among local fintechs who can’t afford the teams that will enable them to raise money.

The Fintrek report identified 11 fintech opportunities models and 47 sub-models and identified 4 sub-models that have flourished in East Africa:

Payments and Savings: digital wallets (M-Pesa, Alipay, Tigo pesa – which pays 7-9% interest and now attract high-end users), payment intermediaries (Cellulant, Direct Pay, Jambopay) and digital currencies (Bitpesa, Coinbase, Belfrics – a crypto-currency platform).

Lending: direct lending (Branch, Tala – with 1.8M customers in Kenya, Kreditech, Umati capital), P2P lending (Lendable, Pezesha – has 6,000 borrowers & 200 lenders), and lending aggregators (lakompare). Also, there is telco-based nano lending (M-Shwari, KCB-M-Pesa, Equitel – which issued $57 billion worth of loans – and telco-bank lenders in Kenya account for over 76% of total loan accounts, but only 4% of the loan values)

Financial Management: Insuretech (Bimaspace, BimaAfya, Microensure), Investech (Abacus, Xeno) and personal finance management – (Chamasoft, Caytree).

FS Enablers: (Jumo – credit underwriting for 5 million customers and 20 million loans), Arifu, FirstAccess, NetGuardian – fraud identifier), FarmDrive, Sasa solutions, Lendddo).

Some recent fintech deals in East Africa include Farmdrive (from the Safaricom Spark Fund), Pezesha (DFS lab), Pula (DFS lab, CGAP), M-Kopa ($80M – Stanbic, CDC, FMO, Norfund), Tala ($30M – IVP), Jumo ($24M – Finnfund), Mobisol ($12M – FinnFund), Angaza ($10.5M – Emerson), Flutterwave ($10M – Greycroft), Netguardian ($8.5M – Freemont), Trine ($8M – Gullspang), Lendable ($6M – Kawisafi, Omidyar, Fenway), Direct Pay ($5M – Apis), Azuri ($5M – Standard Chartered), Bitpesa ($4.25M – Greycroft), Branch ($2M – from high-networth Kenyans and funds – arranged by Nabo Capital)

Production of the Fintrek report was supported by Financial Sector Deepening (FSD) Africa and Netherlands Development Finance Company (FMO).

See more of the EAVCA Fintrek report and other fintech opportunities at the 5th Sankalp Africa Summit on March 1-2, 2018 in Nairobi and see their private equity snapshot report.

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RwandAir applies for US Flights

RwandAir, which is 99% owned by the Government of Rwanda, plans to start US flights, by applying to the US Department of Transportation for the right to fly passengers and cargo between Kigali and JFK airport (New York) from August 2018 using Airbus A330.

The government has designated RwandAir as its international services carrier and the application for US flights also has letters of support from the Rwanda Embassy in Washington, the Rwanda Minister of Finance who writes that the government has supported the airline since its inception in 2002 and support continues to be budgeted for each year.

The application includes three years of audited financial statements. For 2016, the airline’s revenue was $99 million (and this has gone up from $64 million in 2013). Expenses in 2016 included direct expenses of $115 million, staff of $11 million, and finance costs of $15 million –  for a loss before tax of $54 million that was then offset by a government grant of $53 million. Other government grants are cited including $56 million in 2015 and a $28 million in 2014. The application notes that the airline has no financial projections for the first twelve months of operation on the proposed US flights route and requests exemption from providing that (as have been granted to other carriers)

The RwandAir balance sheet at the time (June 2016) was $238 million – but this was before the arrival of new aircraft in an expansion program that included two Airbus A330, and 4 Boeing 737 next generation (NG).  The fleet is now 2 A330, 2 737-800, 2 CRJ-900 and a Bombardier Q400, and RwandAir also leases 3 other Boeing 737 and another Q400. By the end of  2017, RwandAir plans to have 18 aircraft which will include four more  Airbus A330’s.

RwandAir flies to 19 destinations but plans to add China, Germany, and the US flights. Plans to fly to Britain and India are included in the application, and these flights have already started in 2017. RwandAir has codeshare partnerships with Turkish, SN Brussels, Ethiopian, South African, Proflight (Zambia) and Precision (Tanzania) airlines and the application also lists technical and maintenance support partners for their aircraft including Lufthansa for the Airbus A330 and Ethiopian for the B737 NG.

RwandAir has only had one fatal incident; with a wet-leased Jetlink Kenya plane that hit a terminal building while taxiing out of Kigali in 2009 – it resulted in one fatality. After this, they canceled the wet-lease and invested in their own fleet

EAVCA: East Africa Private Equity Snapshot

Ahead of the 3rd Annual Private Equity in East Africa Conference, (taking place on June 15 in Nairobi) the East Africa Private Equity & Venture Capital Association (EAVCA) and KPMG East Africa released their second private equity survey showing increased funding and activity, and with a lot more opportunity for deals to be done.

They estimated that of the $4.8 trillion raised between by P/E funds globally between 2007 and 2016, about $28 billion was raised by Africa-focused funds and $2.7 (including $1.1 billion in 2015-2016) had been earmarked for investment activity in East Africa.

This private equity had funded over 115 deals in the period that were included in the survey. Out of these  the 115 deals, 23 were agri-business, 20 were financial services, 13 manufacturing, and 12 FMGC representing 59% of deal volume. The average deal size had also grown to the $10-15 million range, while in the initial survey it was below $5 million.

East Africa Private Equity Survey

Of the 115 deals, Kenya had 72 deals (63% of the total), Tanzania 19, Ethiopia 8, Uganda 12, and Rwanda at 4. Some of the large deals in the survey, by country, include:

Rwanda: Cimerwa – PPC ($69M), Cogebanque ($41M), BPR-Atlas Mara ($20M), Pfunda Tea ($20M)
Uganda: topped by oil deals CNOOC and Total SA (both $1,467 million), Tullow $1,350M, Total $900M, CSquared-Mitsui $100M, Sadolin-Kansai $88M
Ethiopia: National Tobacco – Japan ($510M), Meta Abo-Johnnie Walker ($255M), Dashen-Duet ($90M), Bedele-Heineken ($85M) and Harar-Heineken ($78M), Tullow-Marathon ($50M)
Tanzania: Africa Barrick Gold ($4,781 million), Tanzania – Pavilion ($1,250M), Vodacom ($243M), Export Trading Co ($210M), Millicom-SREI ($86M), Zanzibar Telecom-Millicom ($74M)
Kenya: Safaricom-Vodacom ($2,600 million), Africa Oil-Maersk ($845M), I&M-City Trust ($335M), Ardan-Africa Oil ($329M), Kenya Breweries-EABL $224M, UAP-Old Mutual ($155M), ARM Cement-CDC ($140M), Wananchi ($130M), CMC-AlFuttaim ($127M), Essar ($120M)

P/E operations: There are about 72 funds operating/focused in East Africa (up from 36 in the first survey) with over 300 employees. 89% of the survey respondents have a local presence in East Africa.

Some of the fund companies that responded to the survey include Acumen, Abraaj, AfricInvest, AHL, Ascent, , Catalyst, Centum, CrossBoundary, Grofin, Emerging Capital Partners, Kuramo, Metier, Mkoba, NorFund, Novastar, Phatisa, Pearl Proparco, Swedfund, and TBL Mirror

Returns:  Of  the deals done, survey responders had an average IRR target was 22% while the actual IRR achieved was 19%.  There were 34 exits between 2007 and 2016, with increased recent activity; 2014 (had 7), 2015 (7) and 2016 (6). The preferred mode of exit is sale to a strategic investors (preferred by 78% while this mode accounts for 38% of exits) followed by share buy backs (32%), then sales to another P/E (21%).

Many of the funds in the region are still in early stages, and 54% have made nil returns to their investors. They surveyors estimate there are more opportunities for Africa private equity in health, education, retail, and manufacturing sectors.

Plane Moments: Mostly KQ

 

  • Precision Air:  Kenya Airways and it’s associate company, Precison Air Services are working on a commercial alignment with respect to pricing on joint venture routes. They have applied to Kenya’s Competition Authority for an exemption as the regulator does not allow two similar airlines to have the same ticket pricing. Read more on Precision Air in which Kenya Airways has a 41% shareholding.
  • Kenya Gets Protectionist:  Kenya is limiting the issuing of new licences for global airlines seeking to exploit the strategic Nairobi hub in a protectionist move aimed at reviving the dwindling fortunes of national carrier Kenya Airways. Transport Ministry Principal Secretary Irungu Nyakera said Kenya is doing what the US and the European Union are doing, limiting the frequency of Middle East carriers because they have realised they are killing their own airlines, leading to job losses.  
  • Tanzania is revamping its national carrier by buying new planes as part of plans to boost tourism and transport sectors.  The country received delivery of two Bombardier Q400 planes in September at a cost of $62 million and has also made initial payment for the purchase of a Boeing 787 Dreamliner, which is expected to be delivered on June 18.
  • Nigeria airline takeovers: The takeover of the nation’s biggest airlines, Arik and Aero airlines by the undertaker, the Asset Management Corporation of Nigeria (AMCON) may have exposed some management lapses in the private sector.. some of Arik’s missteps to include “starting off its international services with the gas guzzling ultra long-range Airbus A340-500s literally guaranteeing losses on its relatively short-range services to London, South Africa, New York and Dubai. It also bought 10 of the relatively cost inefficient Boeing 737-700s used mostly by short-haul, low-cost airlines like Southwest Airlines. It only has four of the more efficient and versatile Boeing 737-800s suitable for high-capacity routes such as Lagos to Abuja and Lagos to Port Harcourt, as well as regional routes to West and Central Africa.”
  • RwandAir will start direct flights to India’s commercial centre Mumbai on April 3…it also plans to start flights to Gatwick, London’s second-busiest airport, and to the US this year as part of its strategy to serve more global markets.
  • The CEO of apologized for customer frustrations  over the last few months.  They have since introduced a new introduced a brand new Bombardier Q400 next generation aircraft to further enhance flight schedule integrity.
  • Etihad Airways Engineering has signed an agreement with Kenya Airways to perform mandatory checks on its six Boeing 787-8’s between February and October 2017.  Etihad Airways Engineering is the largest commercial aircraft maintenance, repair and overhaul (MRO) services provider in the Middle East.

 

I&M Bank Rwanda IPO Launched

Yesterday, I&M Bank Rwanda launched an IPO share sale that will result in the listing of the bank’s entire share capital at the Rwanda Stock Exchange. The Government of Rwanda will sell its entire 19.81% in the bank as part of its divestment from public enterprise policy, and through the sale of 90 million shares of the bank, they hope to raise 8.9 billion francs (~$10.8 million), which will go to the Rwanda government after deducting expenses.

Quick Notes

  • Minimum is 1,000 shares at RWF 90 per share, therefore the cost of investment is RWF 90,000 (~approx $109 or Kshs 11,350). Further purchases are in blocks of 100 shares.
  • Opens 14 February, closes 3 March 2017.
  • Allotment plan: 40% of the shares are reserved for international investors and 60% for domestic investors. The domestic pool is further broken down with 25% reserved for East African nationals, 5% for employees of the bank, 15% for Rwanda institutional investors (QII’s) and 15% for other East African QII’s.
  • The Plan is to list and trade the shares, in Kigali, as ‘IMR’ from 31 March 2017.

IN 2015, I&M Bank Rwanda (IMR) was the 3rd largest bank in Rwanda by assets (RWF 171 billion), behind Bank of Kigali (RWF 561 billion), and Cogebanque (RWF 178 billion). Other banks were KCB Rwanda (RWF 149 billion) and Equity Rwanda (RWF 93 billion). For 2016, IMR had assets of 206 billion francs in 2016, loans of 111 billion and deposits of 134 billion and a pretax profit of 8.4 billion francs. It’ has 17 branches, and plans to build a new headquarters ($25M) and install a new IT system ($4M). It’s business is in four mains sectors – construction, wholesale & retail, manufacturing, and agriculture.

I&M Bank Rwanda (formerly Banque Commerciale du Rwanda Limited – BCR) is the Rwanda subsidiary of I&M Holdings Limited. I&M Holdings listed on the Nairobi Securities exchange in June 2013. It is the oldest financial institution with over 50 years of existence and the first bank in Rwanda, having been incorporated in 1963Actis recapitalized the bank and became an 80% owner in 2004 and sold that 80% stake in 2012 to I&M (55%) and the governments of Germany and France who, through their development finance institutions of DEG and Proparco respectively, each retain 12.5%.

Odd points

  • IMR has entered three swap snap transactions with the National Bank of Rwanda (regulator) in which I&M has given $8 million to the regulator in exchange for local currency. I&M will receive 2% interest and pay the NBR 8% interest in local currency.
  •  In Rwanda, bank directors sign conflict of interest statements?!

More details in the prospectus from Dyer & Blair Investment Bank, who, along with BARAKA Capital Limited Uganda, are Lead Transaction Advisors. BARAKA Capital Rwanda is the Lead Sponsoring Broker.

EDIT

  • @imbankrw Feb 21Good News! The Sale of @imbankrw shares has been extended to March 10, 2017. Do not miss out on this opportunity. Apply Today. #OwnYourBank
  • @imbankrw 3 minutes ago Equity Credit offers an opportunity to our customers who need financing tobuy shares http://www.imbank.com/rwanda/loans/equity-credit/ … #OwnYourBank (I&M is financing purchase of shares, up to 70% of the value of shares, up to 15 million Rwf)

1 KES = 7.93 RWF and 1 USD = 823 RWF