Alternative Finance Limited (Obelix), Nigeria’s SEC-regulated Crowdfunding Intermediary, on Wednesday announced that it has fundraised N100 million from 9,324 registered small-ticket retail investors for 3 promising small and medium enterprises in just 10 days, thus successfully pioneering an alternative way of raising badly-needed cash for SMEs operating in Nigeria.
The investors were wholly from its waitlist of 42,545 early adopters. The average investment in the Private Notes was N10,725 with the smallest and biggest tickets being N1,200 and N20,000 respectively. The longest duration of the new asset class for individual investors is 90 days, with a fixed rate of 12% p.a.
Formal SMEs number 40 million in Nigeria, contribute 84% of total employment, 45% of GDP but just 8% of exports and tax collections by the Federal Inland Revenue Service (FIRS) according to a recent joint report by the Small and Medium Enterprises Development Agency of Nigeria (SMEDAN) and the National Bureau of Statistics (NBS).
A total of 15 eligible applications to raise funds were considered by the company’s Screening Committee but only 3 of the SMEs were accepted by Obelix to utilise monieworx®, its registered Funding Portal, to embark on their crowdfunding campaigns. All the fundraisers have a good corporate governance record and are SMEDAN-registered. The 3 most promising small and medium enterprises that have their securities offerings hosted are, namely: Imose Technologies Limited, Alatiron Nigeria Limited and Q21 Solutions Limited.
According to a Formal MSME Finance Gap in Developing Countries report by the World Bank, the unmet financing needs of Nigeria’s formal SMEs is estimated at US$22 billion yearly. For context, total banking loans was US$66 billion as of December 31, 2022, giving SME loans an 8% share of the loan book.
The risk in this sub-sector is priced in the range of 28% to 35% p.a. Gaining access to finance is by far the biggest constraint to SME growth. Over 70% of the 40 million SMEs cited a lack of finance and access to financing as the main constraint to their business growth. Access to advisory services and access to markets weighed in at a distant second and third.
According to the Credit Bureau Association of Nigeria (CBAN), only four percent of the 40 million SMEs have access to credit from Nigerian banks. 80% of new SMEs in Nigeria thus die before their fifth year.
Obelix was able to onboard 42,545 users on monieworx®, over a 12-month period, through a combination of extensive community engagements to build a suitable “banking replacement”, and the first-of-its-kind early access programme (EAP) that nudges users to join a community or a group.
A surprising insight from its target audience poll of 100,000 people is that they are willing to invest in the absence of outsized financial returns. Specifically, when asked what they value most, regulated products (15%), small ticket sizes (13%), money-on-demand without a withdrawal penalty (12%), short-term securities (11%), weekly coupon payment (10%), Web3-first approach (10%) and Community Subscription Offer Plans (9%) had a combined response rate of 80%. Outsized returns (8%) ranked a distant eighth. On aggregate, individual investors are most interested in near-term liquidity (stacked up to 43% of the response rates).
According to McKinsey’s Global Private Markets Annual Review 2022, “private debt is an asset class for all seasons as evidenced by continued fundraising growth, making it the only private asset class to grow fundraising every year since 2011, including through the pandemic”.
“monieworx® has broadened participation in a very significant way”, said Lanre Showunmi, Director and Co-founder of Obelix. “Debt is the safety part in a portfolio, and we are on course to become the dominant portal through which small-ticket investors enter the debt capital market in keeping with our commitment to make investing fair, accessible, and inclusive”, he stated.
“SME financing is at an inflection point. We have been presented with a once-in-a-lifetime opportunity to win customer primacy and we intend to seize it with both hands”. Thus, Ali Yakubu-Concern, the Managing Director and CEO said, “owning alternative investments will become increasingly valuable”.
“It is said that regulation is how you cap risk”, said Titus Akintola, the Chief Compliance Officer. “This forms the building block in our plan to build a global layer of services for small and medium enterprises”, he continued. We aspire to adopt a safety-first approach in delivering on our “Better – Faster – Cheaper” service charter.
“This is a critical first step in our aspiration to build technology that can create a single Capital Market”, said Salvation Arinze, the Chief Technology Officer. “We are an innovative provider of online retail and SME financial and lifestyle services”.
“There is 100% custody of funds and investment contracts through an arrangement with First Bank, Nigeria’s oldest bank that is registered with Nigeria’s SEC to be a Custodian Bank”, said Abubakar Maibe, Director at Alatiron Nigeria. “This reinforces our confidence and lessens the administrative burden imposed on fundraisers by the Investment Crowdfunding Rules, 2021”.
“Debt crowdfunding presents us with a unique opportunity to access growth capital during this acute funding crunch leveraging alternate financing options that are non-dilutive and founder-friendly by design, on the one part and provides an incentive for the communities in which we operate to get involved through co-creation of value, on the other part”, said Osaretin Sule, the Chief Operating Officer at Imose Technologies Limited. “This way, the local economies become more resilient”.
“We went to Obelix first over our traditional banks”, said Eunice Adeyemi, the Creative Director at Q21 Solutions, “and this was a no-brainer because monieworx® hosted our debt-based securities with more favorable terms, lower interest rates, quicker approval times, and a simpler application process”.
Obelix is widely recognized as the poster child of regulation crowdfunding (Reg CF) and the SME-focused financier of first choice in Nigeria. Crowdfunding is proving itself as a financial solution that speaks to the largest numbers through its simplicity, its transparency, and the service it provides to the local economy and to projects that are meaningful for retail investors.