Category Archives: tanzania

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.

.

Tanzania closes 5 banks

In notices released today, the Bank of Tanzania (BoT) revoked the licenses and directed that five banks proceed to compulsory liquidation, by the country’s  Deposit Insurance Board (DIB).

BOT found that the banks – Covenant Bank For Women {Tanzania}, Efatha Bank, Njombe Community Bank, Kagera Farmers Cooperative Bank and Meru Community Bank were found to be critically undercapitalized and that their continued operations would be detrimental to depositors and a risk to the stability of the financial system.

In another notice, depositors, creditors, and debtors of the five banks were asked to be patient as the liquidator (DIB) makes arrangements, collect debts, and works out a payout plan.

 

Kenya’s Money in the Past: Spymaster Memoirs by Bart Kibati

Excerpts from the Memoirs of a Kenyan Spymaster, a unique autobiography by Bart Joseph Kibati who worked in national intelligence for over two decades, where his job was to, with others in the business, identify and analyze threats and advise the government. It is a revealing look at many sectors of his life (he got married the same day that Tom Mboya was shot), Kenya’s transformation in the independence era, the business environment, and the state of security in East Africa and international relations, while serving in two administrations during  which he interacted with Presidents’ Kenyatta and Moi.

Spymaster excerpts

Police & Cattle & Remote areas

  • Cattle rustling by cattle raiders – Ngorokos (former soldier) has long been a feature in Kenya, with Laikipia and Samburu raids spilling over to Turkana, Baringo and Isiolo areas. Suguta Valley where over 40 police were killed in 2012 is a place that police have long avoided going to for years because of the dangers.
  • While the ‘Ngoroko’ plot against Moi, was a myth, it was based a well-intended idea to have an elite fighting unit to chase and deal with bandits.
  • For decades, Lamu’s Boni forest, which is near the Somalia border, has been a hideout for poachers & bandits and this has been sustained by poor policing practices in the area and support by local tribes.

East Africa & Leadership Styles

  • Some keen observations on some of the factors such as economic desires, ideology & actions of leaders  – Kenyatta, Nyerere and Obote/Amin and other political party & government officials in the run-up to why the East Africa community collapsed.
  • Two days after the signing of an East African a treaty in 1963, there were coup attempts in all three EAC countries.
  • To make their decisions, Kenyatta relied on finished intelligence information, while Moi wanted raw information.
  • Moi wanted to know why the Kikuyu hated him and Bart told him about quotas in education and government, and the collapse of their banks (which were rolled into Consolidated Bank) and area infrastructure, to which Moi replied: “How can the government build infrastructure if they ask donors not to release funds?”

Industry & Economy

  • Beach plots allocated by the President and partnership with hoteliers resulted in massive hotel empires at the coast or wealth from selling utility plots – by people around the president.
  • The greed of property developers and corruption of environmental regulators.
  • The government moved to grant duty-free cars to university lecturers in a move to pacify their radical ways.
  • Coffee smuggling from Uganda, through Chepkube, opened the eyes of many people in government, including police, to quick great wealth that could come from corruption.
  • The Numerical Machine Corporation was a success. It just could not shed the ‘Nyayo car’ tag.

Human Resources  & Working in the Government: 

  • When he finished form four at Mangu High School, he had job offers to work at East African Airways, Barclays Bank, the Post Office, Kenyatta University, and also the option to continue his schooling at A levels!
  • The recent repeal of indemnity for security forces (and TJRC) makes it hard to do police work such as combating terror threats and is a demonization of patriots.
  • How colleagues, and politicians scheme to transfer, promote or demote other security staff.
  • There is no pension for older Kenyans who, while experienced, are discarded under the guise that they are preventing youth from getting jobs. It seems the Government hopes they will die soon and stop draining the meagre government pension.
  • There were no successful coups in Kenya due to (long-term spymaster chief) Kanyotu and the Special Branch. The 1982 coup was unnecessary;  It could have been stopped but for a leak and bureaucracy. But Kanyotu was later misled by Pattni into the Goldenberg scam.
  • The more open that national intelligence services become, with things like having a visible head (of tee NIS) and a website, the less effective they have become.
  • Finally, he ends by asking if Kenya is facing more terror attacks, urban crimes, and rural banditry today because the country doesn’t have a functional intelligence collecting unit. Or there’s more reliance on technical intelligence than human intelligence by a demoralized, ethnicized spy unit.

Some revelations in Spymaster are shocking, but many of the stories have been cited elsewhere with different interpretations, and many of the people named have passed on, or circumstances have changed. Also another story elsewhere, quotes Lee Njiru a long time civil servant who says that: (the) Official Secrets Act binds civil servants to keep secrets for 30 years and the period had elapsed and he was now free to share what he knows.

Also read The Birth of an Airline by Owaahh, which narrates from the Spymaster book, about the break-up of East African Airways and the birth of Kenya Airways.

Tegeta Escrow

Yesterday Harbinder Singh Sethi and James Buchard Rugemarila were charged with obtaining $22 million and 309 billion Tanzania shillings from the Bank of Tanzania in what’s been dubbed the Tegeta Escrow case.

Perhaps the best summary of the Tegeta Escrow case comes from Africa Confidential (Vol 55 – N° 19) dated 26 September 2014 –

  • Heads may be about to roll after revelations about the contested transfer of 200 billion Tanzania shillings (US$124 million) from an escrow account in the central bank, the Bank of Tanzania, to Harbinder Singh Sethi’s Pan Africa Power Solutions Tanzania Limited (PAP, AC Vol 55 No 13). The complex details of how Sethi acquired Independent Power Tanzania Ltd. (IPTL) and then raided the BoT account have now been pieced together by two opposition members of parliament, Zitto Kabwe and David Zacharia Kafulila, with the help of The Citizen and Mwananchi newspapers.
  • If Sethi’s critics are proved right, this is the country’s biggest corruption scandal to date. Based in South Africa, Sethi is a Tanzanian-born businessman with a reputation for dubious past dealings in Tanzania, Kenya, South Africa and the United States. Sethi claims to have bought 70% of IPTL’s shares from Malaysia’s Mechmar Corporation, now in receivership. Yet Standard Chartered Bank Hong Kong (SCB-HK) claims to have purchased IPTL’s debt for $76 mn. in August 2005 and says Mechmar was already in liquidation when Sethi claimed to have acquired the shares.
  • The Tanzanian behind IPTL, former BoT employee and self-styled international consultant James Rugemalira, is also under investigation over the $75 mn. that he was paid by Sethi for his company’s 30% share in IPTL.
  • Both Sethi and Rugemalira have lived up to Kabwe’s description as ‘aggressive litigators’. Their strategy has been to steer the acquisition of IPTL away from non-Tanzanian jurisdictions (Malaysia and Britain), from other interested parties (SCB-HK) and lawyers, receivers and liquidators in Malaysia and Hong-Kong. In this way, SCB-HK’s property rights in IPTL have been summarily dismissed and attempts by SCB-HK’s lawyers to negotiate a compromise with Tanesco have all been blocked. Furthermore, the findings of the International Centre for Settlement of Investment Disputes over IPTL’s overcharging Tanesco for power supplied and the proposal for a solution involving SCB-HK claims have been ignored. Tanzanian courts have been complicit in rubber-stamping IPTL’s transfer to Sethi’s PAP. None of this helps improve the country’s image abroad.

Other

  • The unfolding details about the Tegeta Escrow case resulted in the removal of four ministers back in 2014. On Saturday, the energy minister, Sospeter Muhongo, resigned over his alleged role in the affair last year that saw $180m (£116m) taken from the country’s central bank. The move follows the removal from office of the attorney general, Frederick Werema, the energy secretary, Eliakim Maswi, and the housing minister, Anna Tibaijuka, who was sacked over the transfer of $1m to her private bank account Chairs of three parliamentary committees have also resigned following the scandal: Victor Mwambalaswa, energy and minerals committee; Andrew Chenge, parliamentary budget committee; and William Ngeleja, legal affairs and governance committee.
  • Back in December 2014, Stanbic Bank Tanzania released a short statement on the-then parliamentary report on Tegeta Escrow and their role.

 

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 investor (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.