It’s Tuesday, and today we’re focusing on Zanifu, a Kenyan fintech startup. Founded in 2017 by Steve Biko and Sebastian Kilimo, the company recently secured a new funding round from Yango Ventures.
The Context
We often hear that 99% of companies in country X are SMEs. And that’s true for practically every country in the world. What does differ, however, is their impact on the economy. In the case of Kenya, this impact is massive, generating over 60% of the country’s GDP. To put that into perspective, in India or the U.S., that figure is under 40%.
That impact is even more pronounced in retail. 250,000 neighborhood stores, called dukas, are responsible for 70% of retail sales and 80% of FMCG sales. Their contribution is comparable to India’s kirana stores.
Similar to India, dukas face persistent financing challenges.
According to World Bank estimates, Kenya’s 5 million SMEs have a $20 billion financing gap. If we assume this gap is evenly distributed across SMEs, retail establishments alone face a $1 billion gap.
On the surface, SMEs shouldn’t struggle to find loans. Two main options exist: the government-backed Hustler Fund and mobile money loans from MPesa and similar services.
Both, however, fail to solve the problem fully.
These loans have one major advantage — they’re easy to get. But that’s also their downside.
Once requested, the loan is quickly disbursed into the owner’s wallet, effectively functioning as a personal loan. While over half of businesses claim they borrow money to purchase stock or supplies, 68% actually use the loan for personal purposes. This means that while business owners may initially borrow to further their business goals, in practice, something else often comes up and they divert funds elsewhere.
This mismanagement of capital often leads to business failure. 61% of businesses are either late on payments or default altogether, and 46% of small businesses close due to a lack of working capital — by far the leading cause of closure.
Suppliers could help fill this gap, but most don’t. Only 36.7% of microenterprises have received supplier credit. This may be due to the lack of centralized infrastructure or because suppliers themselves struggle with cash flow, as delayed payments are common.
Then there’s the money flow problem. To lend properly, creditors must be able to underwrite businesses accurately, which they can’t. While over 60% of businesses use mobile money to pay suppliers, over 90% still use cash. Practically every business transacts in cash with at least some suppliers.
Credit has to be purpose-oriented and timely; otherwise, funds inevitably leak elsewhere. That’s exactly what Zanifu is solving for.
The Product
Zanifu provides short-term inventory financing. The product targets both retailers and suppliers.
Let’s start with the former.
Retailers download Zanifu’s app and upload their data, including historical purchases, after which they can apply for a 30-day loan. Through the app, retailers can see their credit limit and pay down the loan. The app allows payments to both distributors on the platform and those outside of it.
What’s unique about the product is how credit is distributed. It’s not cash deposited into the retailer’s account, nor even a purpose loan. Instead, Zanifu pays the distributor directly and secures the goods for the retailer. As of 2023, this model enabled the company to reach a 99.2% repayment rate.
While the product initially targeted only retailers, it has since expanded to include distributors as well. Through Zanifu’s platform, distributors can not only manage their customers’ orders and track sales data but also access loans themselves. These loans are larger in size and potentially longer in duration.
In a way, the platform saves retailers from themselves by making it impossible to mismanage loans. For distributors, it makes dealings with clients more transparent and data-rich, enabling them to better assess which retailers to bet on.
The Business Model
Through its offering, Zanifu adjusts the business model for both retailers and distributors:
Retailers. They no longer need to spend their own cash to buy stock. The cost of inventory is covered by Zanifu and only shows up later, when sales come in and they repay the loan. In practice, that means retailers don’t handle loan money or decide how to spend it, they just focus on selling and repaying.
Distributors. They get paid as soon as an order is made, instead of waiting weeks or months for retailers to pay them back. This gives them more cash available day to day and makes it easier to grow and supply more shops.
There are two other small points I want to note about the model.
The first is how Zanifu underwrites loans. Most retailers don’t have solid financial statements or balance sheets and often lack collateral. Instead, Zanifu relies on mobile money payment data related to purchases from suppliers and sales to customers to make lending decisions.
The second is the debt collection process. The company doesn’t outsource it. Instead, it has an internal team that acts as account managers and builds ongoing relationships with clients. This approach makes collections a more personal and pleasant experience for customers.
Monetization
The company makes money on interest: 5–6% is charged monthly. Retailers typically get goods worth $200–500, while distributors can access up to $10,000 in capital.
The Bear Case
The biggest challenge the company faces is taking all that risk on itself. If Zanifu can’t borrow money cheaply or attract investors willing to buy its equity, the model is immediately under threat. It will either have to pay a higher cost of capital while earning roughly the same from retailers, or raise its own interest rates, becoming less competitive in the broader market. The smaller the spread, the smaller its ability to make a profit or even cover expenses.
The Bull Case
The more loans Zanifu issues, the better its underwriting process becomes. Each order and repayment builds a clearer picture of how each store performs, which store types to focus on, and where the company should expand.
But what I think is the real unlock lies with distributors. The platform creates incredible value for them, and distributors should naturally flock to it. It’s also much easier to acquire a single distributor serving 100 dukas than to go after those dukas one by one. Targeting distributors could enable the company to scale much faster.
And of course, there’s room to offer additional financial solutions to clients, like insurance.
The Takeaway
While there are already well-established solutions, Zanifu still feels like it truly belongs in the market, because the alternatives aren’t specialized. And that’s exactly what you want: a market large enough to build a business in, but not so large that established players would overhaul their entire models, and different enough that incumbents can’t just come in and offer the same product that they offer elsewhere. That’s the perfect niche.
