Clayton Hayward, CEO and co-founder of tech firm Ukheshe, discusses the role of technology in allowing Africa’s small, medium and micro enterprises to access financial services.
In brief
- The digitalisation of Africa “is massively important from an impact perspective”.
- There are 50 million micro SMEs who require the delivery of financial services and cash is the “common enemy”.
- By creating a credit history for them they can gain access to capital.
- This has significant knock-on benefits and digitalisation can also “provide transparency and traceability” to grant dispersals.
- This approach may have application in other developing countries in Asia and Latin America.
Financial institutions in Africa have a significant problem in delivering their products to small and medium sized enterprises (SMEs).
Ukheshe Technologies started started in 2019 as a B2C (business to consumer) focused technology provider to financial institutions in the South African market. It now has a broader focus on sub-Saharan Africa and in particular on helping banks and telecommunications companies.
According to CEO Clayton Hayward, there are 50 million micro SMEs who require the delivery of financial services. “The common enemy for financial institutions in seeking to do this is cash. At least 85% transactions in Africa still occur in cash,” he tells Impact Investor.
Perhaps to overcome this obstacle the company named itself ‘Ukheshe’, the Zulu word for cash.
Hayward acknowledges the effect COVID had worldwide on individuals, and businesses alike. But from Ukheshe’s perspective, he say they “were amazed to see how in an instant, the pandemic increased the rate of digital transformation across Africa.”
Suddenly everyone on the continent needed a digital proposition and Ukheshe happened to be in a position to assist. Now, smart phones play a much larger part in their banking than in equivalent companies in developed markets.
Impact through inclusion
“The digitalisation of Africa is massively important from an impact perspective,” says Hayward.
It’s all about giving access to capital to those who have previously been denied it, whether consumers or small businesses. For too long they have been anonymous. What digitalisation does is it gives them an identity by allowing them to have credit histories, and thus for their transactional behaviour to be analysed. This allows access to capital.
“It is important to consider the knock on benefits from this greater access,” Hayward continues. “There are significant uplifts in employment, and companies are able to grow helping the economic development of some of the poorest countries in Africa.”
There is also another important aspect of the impact Ukheshe is having. Development grants play an enormous role in nearly every African economy. “The dispersal of those grants is always a challenge when you are operating in societies with a high level of corruption,” Hayward observes. “What we do can provide transparency and traceability to those grant dispersals.” This allows those people making development grants to ensure that the money is actually reaching the people it is intended for.
Ukheshe has attracted backing from impact-minded investors, such as Development Partners International (DPI) are major backers of the company which they see as having significant growth potential. James Griffiths, DPI’s managing director, tells us: “The social impact of a product like this is extremely important as the access to banking creates significant change.”
Overcoming the challenges in Africa
“There’s no question that Africa is a tough market,” Hayward confesses. However it is much less so when you are familiar with the local operating terrain. “We grew up there and we have our feet on the ground.” He says far too many investors “mistake Africa as some kind of El Dorado”, not understanding that businesses and consumers are hugely cost sensitive. Price models need to be very sensitive to this.
The company allows banks to deliver embedded financial propositions to fintechs and telecoms companies. Hayward observes that banks are very good at creating safety nets and Ukheshe can overlay technology onto them.
This allows a bank to create a merchant or consumer-facing product. Ukheshe’s technology allows for the integration of all the necessary functions, whether payment integration, the issue of physical cards, or the management of third party providers. In that sense, the company is both a software provider and a processor which enables the digitalisation of any bank.
In his view, all financial institutions are competing for the same customers, and it is therefore very important not to be “simply a software vendor”. “We do not walk in and just provide our clients with a product and then walk away.” The firm aims to make sure that the proposition is successful by partnering with clients and its own pricing model ensures that its own reward is tied to their success.
In South Africa, Ukheshe have been instrumental in many digitalisation projects and it now enables all QR transactions in the country.
In Kenya, it is the first fintech to be approved by the central bank to deliver digital transaction propositions to consumers, working in partnership with Diamond Trust Bank. “Our ambition is to be the biggest technology company with a banking licence in the country and to work with a partner who would provide scale,” says Hayward. “We are all about offering fintech as a service.”
Going global?
Tech companies have had a rocky ride in markets this year. But Hayward believes “the downturn in the technology sector is creating a huge amount of opportunities for us and… is the perfect opportunity for the deployment of capital with add on acquisitions allowing geographical expansion”.
There are lots of older traditional businesses where founders are looking to exit. And Ukheshe will look carefully to create a pipeline of perfect acquisitions.
Technology itself is obviously constantly changing. Whilst much of what Ukheshe does is exploiting existing growth propositions in banking, Hayward recognises technological developments are likely to play a role in the future direction of the company.
He believes Ukheshe’s technology is scalable and effective in multiple markets. The company is currently focused on 15 markets in Africa. “Although we will keep ourselves very busy [there] in the next couple of years,” Hayward sees future growth also in the Middle East and Asian markets. The company has already started approaching Latin American markets and is developing growth plans elsewhere.
