The high failure rates of inclusive credit fintech companies continue to hinder global financial inclusion efforts. Over 54 percent of such startups fail after their first funding round, and only 15 percent secure more than three rounds of investment.
This alarming trend limits the sector’s ability to address the estimated $4.9 trillion global micro and small enterprise (MSE) credit gap, according to CGAP, a research-based platform.
Inclusive credit fintech refers to financial technology solutions designed to expand access to credit for underserved or financially excluded individuals and businesses.
The report, ‘Innovative Financing for Inclusive Credit Fintechs in Africa,’ revealed that investing in early-stage inclusive fintech remains risky due to several factors, including limited capital bases, unproven business models, non-transparent credit-scoring technologies, and weak governance frameworks.
It said many of these companies fall outside formal financial regulations, making them even less attractive to traditional investors. As a result, early-stage inclusive fintech struggles to secure the funding it needs to grow and scale.
However, industry experts argue that data-driven investment approaches could mitigate these risks. By integrating real-time data with fintechs and applying advanced analytics, investors can more accurately assess the riskiness of lending portfolios.
The ongoing funding gap underscores the need for a shift in investment strategies. “Data-driven solutions can help asset managers identify high-potential fintechs while reducing early-stage risks. By leveraging real-time insights, investors can create tailored financing structures that provide startups with the necessary capital to scale sustainably.
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“Development finance institutions (DFIs) and donors also have a role to play in promoting these data-driven approaches. Enhancing technical capacity and fostering innovation in financial modeling can enable the sector to thrive and contribute meaningfully to closing the global credit gap,’ CGAP disclosed.
The report highlighted that innovative financing models such as drawdown-on-demand senior debt, revenue-based financing, and asset-backed lending are emerging as more suitable alternatives for early-stage fintechs.
A recent study by CGAP highlights that these data-driven strategies enhance risk management and transparency and unlock scalable capital for startups.
“Unlike traditional investment models that rely on static metrics and lengthy due diligence, real-time data—such as portfolio performance, cash flows, and borrower behaviours—allows investors to make informed decisions quickly and efficiently,’ it said.
Africa has witnessed exponential growth in its inclusive credit fintech sector, both in investment volume and as a share of total fintech funding. Over the past decade, nearly 270 inclusive credit fintechs have collectively raised more than $4 billion, representing one-third of all African fintech funding,” the report stated.
While investment slowed during the COVID-19 pandemic in 2020, it rebounded in 2021 and peaked in 2023, fuelled by the accelerated adoption of digital financial services and the rise of growth-stage fintechs securing large funding rounds. Companies like Halan, Jumo, M-Kopa, and MNT-Moove have played a pivotal role in driving this growth.
Despite this progress, the report disclosed that funding remains highly concentrated among a few later-stage deals. Series B to E funding rounds account for most of the total investment volume but represent only 5 percent of overall funding transactions.
“Most funding activity occurs at earlier stages, with median ticket sizes of $100,000 at the incubator and accelerator levels and $520,000 at pre-seed. While fintechs typically raise over $1 million at the seed stage, many struggle to progress to advanced funding rounds.”
Over one-third of inclusive credit fintech funding is directed toward asset finance, while another third supports unsecured lending platforms. Some of the sector’s biggest fundraisers include Branch, MNT-Halan, Tala, M-Kopa, Moove, and Planet 42.
Meanwhile, credit-enabling fintechs like Jumo (banking SaaS) and Stitch (financial APIs) have attracted investor interest, reaching many fintechs but at a lower funding volume.
According to Africa: The Big Deal, fintech companies solidified their attractiveness to investors in 2024, attracting over $1 billion in funding,
The data insight firm that tracks funding of $100,000 and above noted that the sector’s share of total start-up funding increased to 47 percent from 42 percent in 2023, marking its highest proportion since 2021. African startups raised $2.2 billion across all sectors in 2024.
“While fintech’s ascent was not guaranteed at the start of the year, it recovered well in the second half, with deals such as Tyme, which became a unicorn, pushing to the forefront,” the data insight firm said.
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