{"id":11026,"date":"2021-05-26T10:10:24","date_gmt":"2021-05-26T10:10:24","guid":{"rendered":"https:\/\/www.africa-press.net\/uganda\/all-news\/why-ugandan-startups-attract-less-financing"},"modified":"2021-05-26T10:09:58","modified_gmt":"2021-05-26T10:09:58","slug":"why-ugandan-startups-attract-less-financing","status":"publish","type":"post","link":"https:\/\/www.africa-press.net\/uganda\/all-news\/why-ugandan-startups-attract-less-financing","title":{"rendered":"Why Ugandan startups attract less financing"},"content":{"rendered":"

Africa-Press<\/a> – Uganda<\/a>. <\/strong><\/span>MTN Rwanda recently decided to consider setting up an independent company to take on and operate its financial technology operations.<\/p>\n

The chief executive officer Mitwa Ng\u2019ambi said financial technology was fast becoming influential in digital finance, so it has been considering setting up an independent subsidiary to run those operations, Rwanda\u2019s The New Times reported.<\/p>\n

Fintech experts are closely monitoring MTN\u2019s move on starting an independent subsidiary fintech company. A move expected to be replicated by other telecoms or financial institutions.<\/p>\n

This, if implemented across the region including Uganda, could rattle the financial technology space.<\/p>\n

Many Ugandan fintechs work with MTN as telecom Aggregators with established agreements to resell the teleco\u2019s services.<\/p>\n

However, following MTN losing billions of shillings in a money heist with third party partner and fintech firm Pegasus last year, questions linger on whether the telecoms might revise their policies with third parties.<\/p>\n

However, early this year, in an with Daily Monitor, Ms Yolanda Cuba, the MTN Group Vice President for the Southern and East African MTN markets reassured the public in her statement on the future of the telecom\u2019s financial technology.<\/p>\n

Ms Yolanda said MTN was going for a more open architectural feature by having more partners on board.<\/p>\n

MTN and other telecom operators or financial operators who many consider starting their own fintechs could be a blessing or disaster to Uganda\u2019s fintech startups.<\/p>\n

Fintechs take a large share of the Ugandan start-up space. However, many continue to struggle in raising venture capital funding and penetrating the market without the help of the telecoms, banks and other key players in the markets.<\/p>\n

Shamirah Kimbugwe, the director at Pivot Payments, a fintech firm opines that setting up subsidiary fintechs could lead to \u2018industrial cannibalism\u2019 and will definitely kill the smaller fintechs.<\/p>\n

However, she also mentions that setting up subsidiaries is a smarter way for companies to mitigate risk from one revenue stream spilling over to another. This, she says, is largely done by many multinationals.<\/p>\n

\u201cCompetition will be tough but that\u2019s what capitalism means. I have said before that payments as a service is no longer new and is literally owned by the Telecoms, fintechs now need to rethink or refine their products if they are to survive,\u201d she explains.<\/p>\n

Kimbugwe says fintechs working as telecom aggregators have some value they bring to the table. Their level of investment and risk mitigation between banks and telecoms as well as ability to customise for banks.<\/p>\n

However, she remains skeptical on the future of aggregators in the market.<\/p>\n

Low venture funding<\/b><\/p>\n

Despite Uganda being an entrepreneurial country, Uganda\u2019s startup ecosystem continues to struggle in raising funding recorded to be the lowest in the region.<\/p>\n

Dating back to 2012, a Digest Africa report has recorded over $55m (Shs196b) raised by Ugandan startups across 168 deals with investment activity peaking between 2017 to date.<\/p>\n

Over the past three years, funding has progressively increased with startups raising most in 2019 with more than 50 per cent of the total funding, collectively grossing $33m (Shs117.5b) across 86 rounds.<\/p>\n

Ugandan fintechs took a lion share with the top five deals of 2020 attributed to the $.275m raise which came in from Eversend, Xeno Investment, Clinic Pesa and Wekebere that collectively raised 97 per cent of the total $1.239m, all but Wekebere falling under financial services.<\/p>\n

With an average annual growth rate of the fintech sector of 35 per cent with approximately 80 fintech startups operating in payments. It is therefore not surprising that fintechs received the most funding out of all sectors in 39 out of the 168 deals.<\/p>\n

However, most funding for Ugandan startups is largely by grants at 133 deals and Seed stage capital at 25 deals. The report suggests a nascent ecosystem and or a lack of funding beyond the grant, angel and pre-seed stage.<\/p>\n

In comparison with regional statistics across Africa, Uganda remains a \u2018small fish\u2019 among the big sharks such as Kenya, South Africa, Nigeria and Egypt.<\/p>\n

For instance, in the 2020 Africa Venture Capital report, Nigeria kept the number one spot raising over $ 307 million, with 21 per cent total equity funding despite attracting less than half the massive $746 million (Shs2.7 trillion) of 2019.<\/p>\n

Kenya raised $305 million for 52 deals, which was about half the $564 million attracted in 2019.<\/p>\n

The report shows that, however, Kenya is the only one out of the four giants that sees no increase in round activity this year with a number of transactions flat from 2019 at 52 deals.<\/p>\n

Similarly, the Digest Africa report shows that Ugandan startups only raised $1.275 million in 2020 across 10 rounds with majority raising grants.<\/p>\n

This is less than 1 per cent of total funding raised in the first half of the year for the continent and an even bigger drop of 77 per cent compared to $5.57m raised the first half of 2019.<\/p>\n

Why low funding?<\/b><\/p>\n

Although Uganda has 14 million bank accounts and 28 mobile money accounts, many Ugandan startups have not fully utilised these accounts to full potential.<\/p>\n

Most, if not all, continue to operate within smaller market segments covering regions across the country.<\/p>\n

Kimbugwe says most Ugandan startups can only position very well in the market to become an investment destination if they have scalable products.<\/p>\n

\u201cThe product that is being placed on the market must be bankable. When we say bankable, there are elements, to attract an investor, you need to know whether the product is scalable, can 1 million people use the product, or is it a product that will have a limited number of users,\u201d she remarks.<\/p>\n

Peter Kawumi, the President at Financial Technology Service Providers Association (FITSPA), says the question of why Kenya and Nigeria is perceived to be thriving is a matter of two things; their populations are higher and they have the ability to scale faster in a highly digitised population.<\/p>\n

\u201cLook at Nigeria, its 200 million people, if you do the product right and it fits into the market segment, you can easily reach 30 million customers, and once you reach such numbers, the volumes will allow you to be profitable,\u201d Kawumi notes.<\/p>\n

Mr Mark Mukasa, the data and analytics manager at Digest Africa, says startups should focus on key sectors such as agriculture, energy, healthcare and education since they reflect the areas that contribute to the backbone of Uganda\u2019s economy want to attract funding.<\/p>\n

Capital<\/b><\/p>\n

Raise funding<\/b><\/p>\n

Mr Mark Mukasa, the data and analytics manager at Digest Africa, says startups have to make the world and investors know of their solutions, tell their story but only after they have built good strong businesses.<\/p>\n

Money follows good businesses.<\/p>\n

Technical<\/b><\/p>\n

Experts argue that the cryptic and highly technical language used in investment funding negotiations and documentation is a hinderance to funding. Regular entrepreneurs who have no legal background need to strike deals armed with a business lawyer by their side. For these startups, it means legal costs that do not come cheap.<\/p>\n","protected":false},"excerpt":{"rendered":"

Africa-Press – Uganda. MTN Rwanda recently decided to consider setting up an independent company to take on and operate its financial technology operations. The chief executive officer Mitwa Ng\u2019ambi said financial technology was fast becoming influential in digital finance, so it has been considering setting up an independent subsidiary to run those operations, Rwanda\u2019s The […]<\/p>\n","protected":false},"author":84,"featured_media":11025,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[2,5,8],"tags":[233,240,234],"class_list":["post-11026","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-all-news","category-economy","category-homepage-english","tag-africa-press","tag-africa-press-uganda","tag-uganda"],"yoast_head":"\nWhy Ugandan startups attract less financing - Uganda<\/title>\n<meta name=\"description\" content=\"MTN Rwanda recently decided to consider setting up an independent company to take on and operate its financial technolog ...\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.africa-press.net\/uganda\/all-news\/why-ugandan-startups-attract-less-financing\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Why Ugandan startups attract less financing\" \/>\n<meta property=\"og:description\" content=\"MTN Rwanda recently decided to consider setting up an independent company to take on and operate its financial technolog ...\" \/>\n<meta property=\"og:url\" content=\"https:\/\/www.africa-press.net\/uganda\/all-news\/why-ugandan-startups-attract-less-financing\" \/>\n<meta property=\"og:site_name\" content=\"Uganda\" \/>\n<meta property=\"article:publisher\" content=\"https:\/\/www.facebook.com\/AfricaPressTunisiaa\" \/>\n<meta property=\"article:published_time\" content=\"2021-05-26T10:10:24+00:00\" \/>\n<meta property=\"og:image\" content=\"https:\/\/static.africa-press.net\/uganda\/sites\/34\/2021\/05\/img-60ae1e413322a.jpg\" \/>\n\t<meta property=\"og:image:width\" content=\"1920\" \/>\n\t<meta property=\"og:image:height\" content=\"1328\" \/>\n\t<meta property=\"og:image:type\" content=\"image\/jpeg\" \/>\n<meta name=\"author\" content=\"cfeditoren\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:label1\" content=\"Written by\" \/>\n\t<meta name=\"twitter:data1\" content=\"cfeditoren\" \/>\n\t<meta name=\"twitter:label2\" content=\"Est. reading time\" \/>\n\t<meta name=\"twitter:data2\" content=\"6 minutes\" \/>\n<script type=\"application\/ld+json\" class=\"yoast-schema-graph\">{\"@context\":\"https:\/\/schema.org\",\"@graph\":[{\"@type\":\"Article\",\"@id\":\"https:\/\/www.africa-press.net\/uganda\/all-news\/why-ugandan-startups-attract-less-financing#article\",\"isPartOf\":{\"@id\":\"https:\/\/www.africa-press.net\/uganda\/all-news\/why-ugandan-startups-attract-less-financing\"},\"author\":{\"name\":\"cfeditoren\",\"@id\":\"https:\/\/www.africa-press.net\/uganda\/#\/schema\/person\/068c7ab4e9634ae78ec5d54ec46598bb\"},\"headline\":\"Why Ugandan startups attract less financing\",\"datePublished\":\"2021-05-26T10:10:24+00:00\",\"mainEntityOfPage\":{\"@id\":\"https:\/\/www.africa-press.net\/uganda\/all-news\/why-ugandan-startups-attract-less-financing\"},\"wordCount\":1142,\"commentCount\":0,\"image\":{\"@id\":\"https:\/\/www.africa-press.net\/uganda\/all-news\/why-ugandan-startups-attract-less-financing#primaryimage\"},\"thumbnailUrl\":\"https:\/\/static.africa-press.net\/uganda\/sites\/34\/2021\/05\/img-60ae1e413322a.jpg\",\"keywords\":[\"Africa Press\",\"Africa Press-Uganda\",\"uganda\"],\"articleSection\":[\"all news\",\"economy\",\"homepage-english\"],\"inLanguage\":\"en-US\",\"potentialAction\":[{\"@type\":\"CommentAction\",\"name\":\"Comment\",\"target\":[\"https:\/\/www.africa-press.net\/uganda\/all-news\/why-ugandan-startups-attract-less-financing#respond\"]}]},{\"@type\":\"WebPage\",\"@id\":\"https:\/\/www.africa-press.net\/uganda\/all-news\/why-ugandan-startups-attract-less-financing\",\"url\":\"https:\/\/www.africa-press.net\/uganda\/all-news\/why-ugandan-startups-attract-less-financing\",\"name\":\"Why Ugandan startups attract less financing - 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