90% of products and services in developing countries are delivered by small business
“90% of products and services in developing countries are delivered through small businesses.” Spoke with Michael Rothe with Flow Global for our micro-podcast series at The Global Impact Investing Network Investor Forum in Copenhagen. He is working to help these small business owners thrive in the digital economy – and providing new revenue streams for these small shops and retailers that gives them more working capital. Their model already has traction – having dispersed over $70 million to 11,000 small retailers thus far.
Podcast Transcript
Michael: [00:00:00] My name is Michael. You should pronounce it Michael cause I’m German originally. So our company is called Flow Global.
Jacob: What is Flow Global all about?
Michael: So Flow Global is about enabling small businesses to grow in the digital economy. So we believe in two things. We believe in small businesses, small is beautiful. And we believe that the digital economy offers a lot of opportunity for small businesses to grow and also to stay relevant.
So we work with small shops, small retailers, who as we know in the West can get pushed out of the market by big supermarkets, right? But in the markets where we work in Africa and Latin America, they still distribute more than 90 percent of all goods and services, and we want to ensure that that stays that way.
Jacob: On a tactical level, what is it that your firm does for them?
Michael: So basically in Africa specifically, one of the new revenue streams that these small [00:01:00] businesses can have is being a mobile money agent. So offering mobile money services to the public. By doing that, they earn commission revenue from big mobile money providers, big telcos.
But they’re constrained by one thing, which is working capital. So in order to offer mobile money services, they need to buy e money float. Just like they need to buy Coca Cola. If they want to sell Coca Cola, they need to buy the bottles. And what we do is by analyzing transaction data that they have, we give them more working capital in the form of e money float.
So basically more stock that they can sell in their business. So if you can imagine a typical retailer would sell around 200- 300 worth of e money floats every week. With us, they can very quickly sell 500 and over a six month period around $2000. So basically quadrupling their business income.
Jacob: How much traction have you [00:02:00] had so far?
Michael: Yeah, so we’ve proven this in two markets now in Uganda and Rwanda and in 11 different mobile money ecosystems. So we work with different mobile money providers who all have their own ecosystem. And we’ve dispersed more than 70 million to more than 11, 000 small retailers. So we would say it’s definitely proven which is also, we think back by the fact that.
Out of the 17 million we dispersed, only 0. 18 percent was not repaid on time. So people really, people, small businesses that we finance really value our service. Cause they know that if they don’t repay. They will not be eligible for the next liquidity advance, the next loan, right? But because it’s so important to their business and they want to grow their business.
They always repay on time a lot of western people would think we’re crazy lending to small businesses, in africa, but even local [00:03:00] banks think we’re crazy because local banks also most often don’t lend without collateral and collateral almost exclusively means a land title, right?
So even when we try to get a loan from our bank and we are basically now an SME in these markets. We don’t get financing because we don’t have a land title.
Jacob: What are your aspirations moving forward?
Michael: Number one aspiration is to convert our existing pipeline. So we have a pipeline of around 120, 000 small merchants who we can reach through the existing partnerships and data networks we have. And then the broader vision is to be the number one growth partner for small businesses and emerging markets.
Jacob: What’s the biggest hurdle that you face right now?
Michael: Now it’s capital. It was understanding the different data structures. It was getting the right partnerships. It was finding the right people and training them, [00:04:00] but now it’s, it’s only capital and we know that every entrepreneur says that for us now, because our product is proven and validated. It really is the case. Now we just need more capital to really scale.
Jacob: What does an ideal capital partner look like for you right now?
Michael: Yeah, somebody who shares two things with us. One is our vision. So somebody who wants to enable small businesses to grow. So we get a lot of requests also from our partners to do consumer lending or other offer products.
We don’t do that. We want to fund small businesses and work with small businesses in other ways, maybe provide them with e commerce platform so they can offer more services. So we want to be a part of small business, that’s one. And the other one is to be as courageous as us, right? So what happens a lot of the time is that we talk to potential investors and they say, yes, we love what you do.
And it’s amazing that you take this risk, but we only go to fund 20 percent of your existing portfolio [00:05:00] or even worse of your audited portfolio, right? Now that doesn’t really work. If you have 20 percent month on month growth. And you have basically the opportunity to take the loan book that we have now to around 50, 60 million, right?
At the moment we disperse around 5 million per month. That can easily be two, 300 million. So we need somebody who, yeah, I’m sorry to say it doesn’t just talk, but actually delivers. And that, and our, from our perspective also means taking risk and growing fast, right? If you ask us, what should an impact investor do or what should philanthropic capital do, it’s really enabling entrepreneurs, service providers to perform at their potential.
Right. And that’s what we’re looking for. And that entails taking risks and that entails moving fast. Right. Cause our, it always comes back to our customers, our [00:06:00] very small businesses that we fund, they move fast. They work very hard. And they can double their business within a month or two, right? So why can’t the big investors sitting in London, New York, Singapore, do the same?
Jacob: They’ve got a lot of options of places to put their money. Why should they bet on you? Like, what’s the, what’s the pitch for why you’re a worthwhile place for their money?
Michael: Two things.
First of all, we believe in and we stay true to our mission. So we will deliver social returns, which specifically is enabling our customers who are small business owners to grow their business, which translates into a business income. And in their case is almost always equal to household income, right? And that then triggers down into allowing more families, sending their children to school and so on.
And then secondly, we deliver financial returns, right? So our model is [00:07:00] completely proven financially. We generate roughly an 85 percent return on our portfolio per year. Which even companies in the West mode couldn’t say about themselves most of the time.
Jacob: Success in your impact. How do you measure that?
Michael: Yeah, so the, we usually, at the moment we measure it by what we have data on, right? And we have data on business income. So maybe take, taking you back to the, a typical customer. So a typical customer is a very small shop or small shop which assumes an important role in the community where they operate, selling FMCG, selling agricultural input, selling groceries, and offering mobile money services.
So it is the place where people pay for their utility bill, it’s their electricity bill, their water bill, but also deposit money onto their wallet. So it is their interface to the formal financial sector. Now [00:08:00] for them, success is growing their business, right? And we enable them to grow their business and that we can measure by hard data on their business revenues.
Jacob: How does somebody find you if they want to follow up?
Michael: So we work with mobile money providers who give us anonymous data on their merchants, their mobile money agents. Now, from that, we identify those who qualify for our services, which is roughly the top 40 percentile. And that is really important because we also believe that credit is not for everyone, right?
Not everybody should get credit and not everybody will put it to good use. So it’s important to us that we work with businesses who want to grow and have the ability to grow and put capital to good use, right? So we then based on that anonymous data dump, identify the top 40 to 35 percentile who would qualify.
[00:09:00] Now, once we have identified them, we go back to our partner and we say, Anonymous still? Because we maintain our customer’s privacy or potential customer’s privacy. This is the list of potential women and men who would be eligible with their businesses for our services. Can you contact them and ask them whether they’re interested?
So then our partner who already has their contact information, because they’ve KYC’d them contacts them. Oh, we have a new product, which we offer in partnership with Flow. Are you interested? If they say, yes, we’re interested. We then visit them, explain the product in detail. and get their consent to analyze the data for the purpose of designing the right product for them.
And so then we give them a custom made product liquidity working capital product to grow their mobile money business, right? And now, because we are a brand in the market where we operate in Uganda and Rwanda, now customers also approach us. So we have a self registration [00:10:00] functionality on our app.
Just to be clear, you don’t need a mobile app to use our services. You can use USSD, you can use mobile phones, just calling us. And we have human relationship managers visiting every customer, but there’s also a mobile app and prospective customers can self register on the mobile app, upload data, and then we go and visit them and do the assessment and decide whether we can work with our customer on, on.
Jacob: And if an investor is interested in talking with you, how do they find you online?
Michael: They can go to our website, which is www. flowglobal. net. We are also available on a number of platforms. So we are part of the 2022 Cohort of Inclusive Fintech Fifty from the global competition for inclusive Fintechs. Then we won the Fintech for Good Award of the London Fintech Award.. So there’s a platform in the UK called Floww. Interestingly, with two W’s in the [00:11:00] end where investors can find out we are on the platform of the UK Fintech Alliance. They have an investment platform an d then our Uganda subsidiary Flow Uganda. is in the deal flow facility of FST Uganda.
Jacob: Fantastic. Hope you have a wonderful time here at the Global Impact Investing Network in Copenhagen.
Michael: Yeah.
Jacob: And thanks for sharing your story.
Michael: Oh, thanks a lot. Thanks a lot. And thanks for having me.
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