SMEs lender saves suppliers agony of delayed payments

Kenya’s retail sector is thriving, if the ongoing expansion by the likes of Nakumatt, Tuskys and Naivas supermarkets can be taken as a true measure of the industry’s health.

The power behind these retail chains are the hundreds of suppliers who deliver truckloads of goods every day. However, they have to wait between 45 and 90 days for payments, affecting cash flow of the SMEs.

It is this financial predicament that inspired Munyutu Waigi and Ivan Mbowa form Umati Capital in 2012, an invoice discounting and SME working-capital solutions company.

“We saw an opportunity to create an investment product for the public through our loans to these SMEs and create a platform to support them with short term debt,” Mr Waigi told Enterprise.

Mr Mbowa, 32, is a former investment adviser at Citibank while Mr Waigi, 34, is a businessman who founded e-commerce site Rupu before he sold it off.

Mr Waigi says Umati, Swahili for crowd, reflects the online firm’s long term-goal of establishing a crowdfunding platform for businesses.

Typically, Umati Capital clients are suppliers of large businesses who have to wait for months to receive their payments.

In the retail sector, for instance, suppliers of fast-moving goods like sugar and cooking oil are normally paid under a month while the longer settlement periods mostly affect suppliers of slow-moving goods such as furniture.

For a trader to receive credit from the firm, one needs to have a valid and current supply contract with supermarkets or manufacturers and an invoice worth at least Sh100,000.

Umati, which Mr Waigi says is currently valued at about Sh459 million, also advances loans to cooperatives, traders, processors and exporters of agribusiness products.

Umati Capital loans its clients up to 80 per cent of the invoice amount at an interest rate of between 1.8 per cent and 2.5 per cent per month.

On the day that the supermarket or large manufacturer pays the entire amount to Umati, the company pays the SMEs their remaining 20 per cent less their fees.

“We process the loans within 24 hours of the supplier presenting their invoice to us,” says Mr Waigi, adding that they have more than 100 suppliers as clients.

On average, SMEs seek loans of between Sh50,000 and Sh500,000.

However, agri-processors or exporters in need of customised working capital solutions request for between Sh5.1 million and Sh510 million, but one must be worth at least Sh25 million.

Mr Waigi says Umati’s model could have a big impact on the economy because they serve clients in the agribusiness value chain where close to 60 per cent of Kenyans earn a livelihood.

“We envision being one of the largest lenders to the most important sector of our economy.

“Our top clients are involved in different activities from dairy processing to macadamia exports and even fresh produce export,” he says.

The firm operates a lending programme that targets dairy farmers, whose payments for milk deliveries come in 30-day cycle, by making daily payments on behalf of a processor without collateral.

The digital company has a staff of 13 and four consultants. It has partnered with firms such as Airtel for encrypted money disbursements as well as the East African Grain Council in order to increase its reach.

Umati has in recent years received funding from several firms for its expansion.

In 2014, the company received a $10 million (Sh1 billion) from Singapore-based ApexPeak.

Later that year, Umati received equity investment from Washington-based Accion. However Umati did not disclose the amount but Accion through its Venture Lab initiative invests between $100,000 (Sh10.2 million) and $500,000 (Sh51 million) in a firm.