In this episode, Mike Townsend sat down with Timothy Nuy the Founder and CEO of Finclusion Group, which is working to enhance the lives of Africans through simple, convenient, and appropriate financial services. Since its inception in 2018, Finclusion’s proven credit-scoring modules have led to the distribution of 310 million in loans to 240,000 customers across five countries.
Prior to creating Finclusion, Nuy founded Fractal Labs in January 2020, creating a unique risk and AI modeling framework to the financial market.
Nuy received his Bachelor of Science, International Business Economics from Maastricht University in 2008, also completing a program at Cal Berkeley’s Haas School of Business. In 2011, Nuy became the Director of the African Development Corporation, an investment holding focusing on the financial services industry.
In March of 2015, Nuy became the Deputy-Chief Executive Officer of MyBucks, a company that operated financial institutions in Africa, Europe, and Australia. In March of 2019, he moved into the role of Chief Executive Officer, paving the way for the founding of his current companies.
Mike Townsend: Today's guest on Around The Coin is Tim Nuy, the founder and Co- CEO of Finclusion. Finclusion is based out of South Africa, issuing loans to people throughout Africa. I believe they're in about four countries now, and they've done millions of dollars of loans. We talked about how they're expanding throughout Africa, what the economy of Africa looks like, both the upsides, the downsides, the the risks that are on the horizon, but also where there.
Probable economic development. We talked about the influence of China in Africa and the infrastructure and credit debt relationship that have been built as a function of that development and what the future looks like as Africa grows and builds and needs debt. Hope you enjoy this conversation. Here is Tim Nuy. Timothy, I'm excited to chat with you. Why don't we kick it off with what you're currently working on. So you're based outta South Africa. You are working really seemingly with the mission of improving access to financial tools in South Africa, Africa at large. With fin conclusion, how do you sort of define the scope and direction of what you are most excited to help solve?
Timothy Nuy: Sure. So I think where we see ourselves different than many of the fintechs. around is that we very much focus on building a solution that the people on the ground really need. Creating a digital bank, but with a credit first approach. Offering a hybrid, you know, way of obtaining credit. Not just digital, but with digital processing and, and digital outputs, but also through a hybrid strategy with offline in strategies.
And I think that gives us an edge really addressing our, our ultimate goal as the middle class serving them with, with. credit We're in South Africa, Kenya, Tanzania at the moment. Right now just doing credit, but over time, looking to elevate that from just credit to deposit savings insurance, where it's our goal to really become people's, you know, financial home.
Over time as we see these markets pick up interactions. .
Mike Townsend: And so the basic business model is you borrow money from banks or individual people and then decide who to loan them out to. Typically small businesses tell me where I'm wrong.
Timothy Nuy: Absolutely. Although, you know, I think it, it's not just, well, I guess it is deciding who to lend it out to, but it's both the, of course, the strategy of, of who to give credit to from a credit decisioning per.
we use AI algorithms to, to effectively determine who we think are credit worthy, predominantly looking at their mobile money history, their transactional financial statement, history, looking at income and expense, but not just the affordability levels of, of what they make and how they spend it. But also trends and, and behavioral traits we believe we can read out from this.
And then at the same time it's about finding those people. So we use digital partnerships. We partner predominantly with employers, with merchants to give people access to instant credit because I think it's more and more important for people to continuously have direct access to, you know, the services they seek.
And I think it's the easiest point in time to provide people credit as they're looking to, to close a transac. So it, it's really both. It's finding the people that need and want the credit as well as, as then being able to score them better than the rest.
Mike Townsend: And what's the, what's the type of person who you're most interested in talking to?
Is it like a small business owner that needs thousand dollars by a freezer, or is it like I'm buying a pair of shoes online? Or who, who,
Timothy Nuy: So that's a good question. So, so we see ourselves as slightly more productive. We go for slightly larger loans, although when I say larger, our average loan size is about a thousand dollars.
But as a different context in Africa, vis-a-vis what it has in the rest of the. Then with that average loan size, we're looking at usually 12 months loans, installment loans. And our clients are usually either formally employed or informally employed, or entrepreneurs. The loans could be for home improvement, buying a car, buying a motorbike education.
We do a lot of school fee loans. And from an income level perspective, it's probably people making for about $300 a month upwards. All the way up to sort of three, $4,000 a month really covering that middle class. For us, we grow with our customers, so we also like to be able to give larger loans. So if someone successfully repays, wants to do something more, ideally manages to, to build out his, his business from one truck or one vehicle to multiple vehicles, we can still grant that credit.
So we're, we're less focused on, on ones off transactions and we're focused on really building sustainable relationships with our clients and over. Really would like to be able to even, you know, provide bigger loans, whether it's 50 or a hundred thousand dollars. You know, if, if clients can sustain it, then, then that's what works for.
Mike Townsend: Got it. And how far along are you in this? How many what? What's the total value of the loans given out or coming raise?
Timothy Nuy: We we're really granting about 3 million of loans a month. Mm-hmm. , So that's give or take 3000 loans or average loan size each month. And then we've grant, well we, we've, we've granted a lot more loans, but we stand at about 25 million active loan book outstanding at the moment.
We, we believe we can scale that significantly over the next couple of years. I. As Africa gets more online, more digital data is available, the ability of really score digitally and give sustainable larger loans will go up materially today. Data still is, is one of our biggest challenges because ultimately it's difficult for us to give sizable loans if people haven't really transacted online or use mobile money.
Because you know, we don't wanna rely on traditional sources or, or subjective sources, so we don't want to go with interviews or assessments because the second you do that, it becomes very difficult to digitize and automate. .
Mike Townsend: Right. And, and what's the distribution of those loans across different countries in Africa, roughly speaking?
Timothy Nuy: So, our core markets are South Africa, Kenya, and Tanzania. South Africa's probably about 50% at the moment. Kenya, about 40% in Tanzania, about 10%. But the growth rates that we see in Tanzania are probably some of the biggest, you know from within our group. We're looking to add Uganda in the next six months and, and we do believe that both Uganda and Tanza.
Will be very significant growth drivers for us based on the relative market dynamics and the relative credit to GDP ratio. So South Africa actually has credit to GDP ratios that, that are very much in line with you know, modern country standards close to a hundred percent private credit to GDP ratio.
Whereas you look at Kenya, Tanzania, they're close to about 20% credit to gdp. So from a penetration perspective, the opportunity is, is really in East Africa. South Africa has the big benefit for us that the digital landscape is, is very powerful. Everything is connected, so the ease of doing business is, is much easier and it's a great market for us to test all our tools and to really basically, you know, give things a try and then figure out what works and what doesn't.
Mike Townsend: Can you explain that ratio a little bit more Credit? You say credit to gp? What is that?
Timothy Nuy: Sorry. Credit to gdp, growth domestic products..
Mike Townsend: and is that of the country. So you're measuring the credit
Timothy Nuy: of the, so the total credit in the country relative to the total gdp, just to see relative to the country's sort of production levels, what's actually financed with private credits versus inability to access credits.
And I think the higher ed ratio, obviously the more creative penetration country has seen The ratio should be more linked to economic development. Obviously that ratio being very high in the United States makes a lot of sense because a lot of people can qualify for credit. But emerging markets you naturally expect it to be lower because not everyone that produces will be able to be eligible for credits.
Mike Townsend: Interesting. And what, what would a typical number look like in, in, say like a country, like in Europe or the US versus in Africa?
Timothy Nuy: So, US Europe, it's all around a hundred percent Europe slightly lower than the US average emerging markets globally. You said it around 66 0. Africa is a continent that around 20%, two zero.
So it shows the, the under penetration, even vis-a-vis Asia or Latin America on the, the private credit. and clearly going. It also includes corporate credit, of course, but it showcases the potential of the financial services market as a whole.
Mike Townsend: Interesting. And it's access to that, that credit. That is the opportunity.
And what do you see across the different countries in Africa that you think attribute most to which, which countries are rising quicker? Like you mentioned, Tanzania, Kenya, obviously South Africa has more of a economic history.
Timothy Nuy: So I think for us, we see a lot of grows in Tanzania cause it's been extremely under penetrated and not as much targeted by, by FinTech startups or startups in general over the last few years.
So if you sort of look at the African continent and you look at startups, look at people from the United States, from Europe, you know, South Africa, Kenya and Nigeria. Egypt, they've always been the core countries in focus. They've gotten a lot of attention. They've gotten a lot of, you know, innovation. But on a relative basis.
Some of the other markets don't, per se, have less potential or macroeconomic or informal economy basis, but they haven't seen the same level of development and penetration. So in some of those other markets, for us it's a Tanzania. But the same thing applies to Francophone Africa. There's a lot of quick wins and low hanging fruit because there's customer groups that haven't actually been served that would've been served had they been based in Nigeria, Kenya, or South Africa.
So that's why we see a lot of growers in Tanza. Generally speaking, you know, in terms of ease of doing business you know, Id, id, infrastructure, banking, infrastructure, level of actual data penetration. Can people, you know, get online? What's the cost of going online? Is the smartphone penetration pick up?
Are all factors that play a big role? Kenya's real differentiation, and one of the reasons it grew so much was the penetration of mobile money. So with Safaricom and Pesa, the country was the first adapter of, of mobile. We've created a digital trail and, and a transaction history for virtually every Kenya, which means that there is a basis to start scoring.
And that's something that's still, you know, lacking behind quite significantly. And in virtually all the other markets. Nigeria, you know, not a market we're in, but through into Switch and their local verve guard has quite a good database. But then you look at, at Tanzania in Uganda, there's still a very significant degree of, of cash that's only now really starting to turn into mobile.
Mike Townsend: Hmm. And do you, do you feel like there's a cultural acknowledgement that this is, that moving in this direction of having access to credit, having access to the internet, becoming more plugged into the global economy. Obviously it introduces an enormous amount of change from the traditional lifestyle in some of these places.
Is that something that you think is widely accepted as this is the direction that we want to go? Or is there still, or is there mixed views? How do you sort of assess this general sentiment?
Timothy Nuy: I think it's a journey and it very much depends, I guess on age groups as well. Yeah. But we still see the traditional microfinance houses that do everything offline as our biggest competitors.
And, and we have certain advantages. We are much quicker in credit turnarounds, we can actually give better service cause it's digital. But that phase, that direct interaction is still something a lot of people are used to. So I think that that journey of going from offline to digital, You know, it's still not fully accepted.
The big benefit we have is that that unlike the Western world, where at some point, you know where Bang Branch and ATMs at every corner of the street, that infrastructure was never built in Africa. So the adoption of digital channels is accelerating because people get access to things they otherwise wouldn't be able to get access to offline.
And that's where people really start to understand, okay, actually if I adopt. Then it gives me the following benefits. I can suddenly do this, I can suddenly call people and I mean, Africa basically skipped landline telephony and went straight to mobile. I think on the sort of, you know, smartphone perspective, it's similar in a way.
They skipped the first few generations, but we now see an acceleration. You know, there's lots of places where there's still no fiber internet, but there is 5g. And you know what's interesting is, Because Africa was such a late opt of 4G and 5g, in a lot of the countries, the cell phone towers were actually designed optimally based on the lay of the land and the geographical footprint.
Whereas if you look at sort of Europe or the US then you'll see that historically towers were built up where they thought the biggest demand was. And then the rest of the country was retrofitted creating sort of gaps in coverage because no one really, you know, took the map and said, Okay, we have an empty map.
Let's figure out how we basically build digital infrastructure here. So there is leap frocking. I think there is definitely elements where you know, they can accelerate and I think politically people fully understand this is the way to go. But on an individual basis there's a lot of people who are still very used to offline.
Mike Townsend: Yeah. Yeah. And, and do you view that as sort of the largest thing that that would need to change to have wide scale adoption? Of, of not
Timothy Nuy: trying to, I think to really build, you know, multi-billion dollar businesses in this segment, that adoption level is what needs to go up. Right now the, the relative percentage of offline is still much bigger than online.
But on a positive, because there is also a relatively small amount of market participants, I feel am very convinced even without further adoption, we can build a billion dollar business on the continent, just granting credit to those that are transacting online now, just because the level of credit penetration they have.
But for us to really do something transformational yes, that that level of digital adoption needs to. What we do to try and push that is we use hybrid channels, so we work with employers, with merchants, with agents, and allow them to help clients get their first online experience and then effectively explain that.
Look, if you go through the app, you can continuously see your balance. You can see your latest transaction. It makes your life easier. You can save money, you can get extra credit and try and effectively convert people. But then conversion remains difficult which is where our hybrid strategy with the agent gives us an edge, but it also means we have to keep pushing it because over time we think it's, it's, it's very critical that client ownership comes, you know, firmly with us and is not purely shared with.
Mike Townsend: Interesting. What do you view the influence of China so far, either in South Africa or other countries? Have they influenced much of the economy from your perspective?
Timothy Nuy: So it's, it's been very material. I mean, they've really been responsible for big pieces of infrastructure. You look at all the airports that have been built, roads that have been constructed, a lot of that has been Chinese money.
It's interesting because they've really created capacity from an infrastructure perspective, which is obviously a great thing. At the same time, I think that, you know, a lot of that was done with Chinese labor where they actually fly in everyone from China, so, so it hasn't, per se, made a real impact on the real economy of some of the countries.
It just made life easier for those of us traveling in and out. But yes, you can see that they've really secured a lot of influence. I also think that they've funded those construction products quite cleverly with contracts for proceeds from mining or agriculture outputs and then really solidified their relationships on the African continent.
So I do think that that Africa has stepped in very cleverly in, in where perhaps gaps were left with the investment strategies that came from. .
Mike Townsend: Mm. Yeah. It's in a really interesting relationship. China and African countries. Yeah. What are other things about Africa, maybe about the economy in the various countries, maybe South Africa or surrounding countries that you think most people don't have an appreciation for?
Timothy Nuy: So, so I think it's, it's, I think it, it's hard for you the fact that, that if you look at the component, a lot of countries have very different challenges, so, There's 54 countries that probably have more differences than they have in common, except for the fact that there is still a massive opportunity out there.
So, so I think that's, that's often something that, that's ignored. I think if you look at South Africa, very good. Digital infrastructure has some challenges, you know, politically as well, relating to its history. The biggest challenges that Africa is that there's just too small of an economically active population relative to the total population support.
And then there's other markets where, you know, there's just so much infrastructure missing that they still have really catching up to do. So, so big differences. I think people underestimate, you know, how much basic infrastructure is still needed. So you get a lot of people that pitch and say, No, we're gonna solve everything for people on smartphones.
But in as much as smartphone penetration is picking up, But I believe the latest stats were around 40%. that still is a minority that does have smartphones, but even if people have smartphones, they don't always have data they can afford. So they might actually not be online or being, using the smartphone functionality.
Some people have multiple, which means the amount of people that have known is actually higher and people think. So I think that degree of, of line interaction that's necessary is, is very critical and I think that it, it means. The potential is huge because if some of these things really changed and some of these continents will really start taking off.
But at the same time, I think, you know as much, I'd love to say that, that Africa is where a Brazil is. You know, it's still quite far from from where a Brazil is and I think that's where oftentimes people have, have perhaps unrealistic expectations. I think the growth potential in Africa is possibly bigger than anywhere else in the world just because the level of of penetration where we are.
But there's still a big journey to go, you know, there's no digital verification of IDs possible. You know, a lot of things are still luxury problems because there's so many primary challenges hunger, you know, poor pure property that the people are still dealing with on a day to day basis. Meaning that, you know, some of the other things that, that are often already now important in, in sort of slightly more elevated Western markets aren't as much of a topic in some of the African.
And do you,
Mike Townsend: do you see this as a 10 year, 20 year, 50, a hundred year kind of, sort of challenge where I, I think of it as if you're in poverty in some, some of these countries, the big economic opportunity, That's staring in the face is like, like interacting with and being productive on the internet. You know, we're now in a global workforce.
The vast majority is vast majority of tech companies are remote. So many companies are remote. They, as long as you have a protocol for communication, like if, if you can speak the same language or even use a tool.
Timothy Nuy: Absolutely. I think it's picking up, I think the biggest difference is, is I think India and, and China are really reaping the benefits from their investments in educat.
and, and that same investment hasn't taken place across the board of Africa per se yet, which means that on an average level, people aren't as educated as in those markets, which means that the current generation, not everyone, we are able to take some of those knowledge worker roles that you can actually do remotely.
So we do see some of those roles picking up developers salaries, picking up heavily. But in as much as you. Salaries for tech developers in South Africa, probably at a record. High unemployment's also at a record high because there's a lot of people that don't have transferable skills that could work in a global economy.
So the big thing that will need to happen is, is really see education levels go up, have everyone complete basic education, start going with further education. We see that people are prioritizing it for, you know, their children and next generation. You know, from my perspective, . Realistically, it's probably a 10 to 20 year journey to really see Africa succeed because that generational impact where education levels materially change and, and people can really participate in the global workforce, I think is incredibly important.
But that being said, that doesn't mean we won't see significant growth year on year just because the low levels, you know, things are, are currently coming from. So I think great things are happening every year. Africa's come a long way since I've started you know, working on the continent in 2010.
But at the same time, you know, that, that, that that exponential growth that, that people have hoped for hasn't yet kicked in. But I have no doubt that it will. It's really just a, a question of, of when that escalating events is that it really starts growing, you know, quicker than, than anything else. It needs capital.
But most importantly, it just needs investment in education because it's the people that can really take things further and, and, and truly transform the cnce.
Mike Townsend: Do you think the the place will be heavily influenced in the short term by, or have you seen an influence in cryptocurrency and the technology of decentralization?
Take, take root. I mean, I, I know from just firsthand experience, there's a strong culture in Nigeria and many countries in Africa. Famously the Twitter c Twitter ceo, Jack Dorsey made a big trip around Africa promoting Bitcoin, and it seems. Culturally, especially young people are super bullish on it.
What's your sentiment?
Timothy Nuy: So it's a, it's a complicated one, so it's, and it's a very interesting one as well. So, and then the reason I say that is that from a general population perspective, a lot of people are very excited about, you know, cryptocurrency cuz there is a lack of distrust in local currencies and, and, and, and, and no per se, unfairly.
So to a certain extent, if we look at how some of them have performed to the US dollar over time. So for a lot of the average people, Banks and, and local currencies, they feel like they're giving their money away. It's a little bit like the equivalent of a Chile or in Argentina where time, over time again, the currency devalues in people's savings and wealth wipe out.
So from that perspective, obviously crypto and Bitcoin offers a very attractive alternative. I think the main challenge is that from a regulatory perspective, regulators, governments are very afraid of capital, fl. And there's exchange control regulations where there's limitations on how much money you can move in and out of the country in a whole number of them.
Nigeria included, South Africa included, I think regulators are trying to figure out how to regulate crypto. Nigeria now is, is, is is running pilots with, with digital currencies and sort of a central bank crypto Coin. But obviously in as much as that, you know, applies some of the technology perspectives.
It doesn't truly address that, that, that, you know, that complete decentralization and moving the currency controls away from, from government. So I think we'll see adopt adoption of, of sort of, you know, crypto like technology in Africa very significantly over the next couple of years. But I also think we'll see continued pushback of regulators that have a fear of what would of what free adoption of Bitcoin would do to potential capital flight from the country.
And I think that's where, you know, fundamentally a lot of people think that Bitcoin can address you know, making remittances easier, moving money across easier, and then as much as operationally that's true. You won't get a stable exchange rate of local currency versus Bitcoin anymore. You would get of local currency versus US dollar until you fix some of the underlying problems that exist in the local currency and, and you get those trust levels.
Because otherwise you're just shifting the problem and you now have a variable local currency to crypto rate instead of a variable local currency to US dollar rate. So I think we'll, we'll see Adoption definitely. I think the technology is super exciting. I think lots is happening that, that makes a lot of sense.
But there's still a lot that that needs to happen. and
Mike Townsend: And do you think, I mean, I sort of compare it to the US in the sense that the US has 50 states that are easy to move between, and then a centralized federal government, Africa has 54 countries. That is probably harder to move between, but no, no centralized authority.
There's no like African government. Do you see this as a scenario? Maybe one country takes a stand similar to El Salvador and says like, Screw it. We're just gonna go all in and we're gonna differentiate ourselves. Instead of trying to fight the same battle everyone else is fighting. We're gonna go like crypto first, dissolve the fiat currency, or maybe acknowledge Bitcoin as a government recognized currency and just fully try to support it and to try to track smart people and grow the economy that way.
Is that something that you think any countries are navigating towards? Do you think that's a realistic scenario? So I
Timothy Nuy: think the difficulty is, is that you always figure out how you manage policy as a government. And if you look at sort of, I mean, you look at Zimbabwe, right? Zimbabwe had a local currency had crashed and in 2008 they adopted the dollar and they were literally a used dollar driven economy only operating on, on dollars from 2008 for basically a decade.
But eventually had to reintroduce the local currency. , they were depleting their dollar reserves, couldn't get access to further doors, couldn't get access to further loans, and they weren't able to transact anymore. So without actually raising a local currency, reintroducing that they would've had situations where they couldn't have paid their contract, couldn't have paid government employees.
Now, subsequent to doing that, that local currency has wiped out in value, crashed, and it hasn't, per se, worked out better for the country, but they were left without alternatives and. You know, with the exception of, of smaller island states, that to the extent they have a free, a fairly free rate against the US dollar, it's potentially very risky for a country to go and say we're, you know, not our own currency only because they'll not be able to basically drive economic policy anymore.
And I think that's the real challenge. I think if we get someone to say that probably be associates or a Mait that have tourist dollars that have. Revenue streams, or possibly it could be a very, very heavy sort of, you know, resource based country where they believe they can actually generate those, those streams.
But if they want through everything with crypto, they still need to have a currency or a motors of, of getting that crypto. So I do think we're gonna get some stances, but I think initially, you know, I think we're gonna see people trying to be from runner the way Nigeria is doing it by creating their own digital currency.
Where effectively they, they try and limit some of those risks, if that makes sense.
Mike Townsend: Hmm. So you're saying the problem is that people would need a way to move into cryptocurrency, Like if they're moving to Bitcoin, does that mean, are you looking at it from the lens that they're, that employers would still pay out in some other currency other than Bitcoin?
Timothy Nuy: could you see, Well start with government, right? Government has employees. So where does government get its Bitcoin? It needs to have economic reserves of service to be able to obtain that Bitcoin. Cause it probably wouldn't be able to drive enough revenue of its resources to do that today. So that's where I think the big challenge comes in.
It's really from a government perspective, is how do they basically make budgets work? How do they pay people? How do they pay the army? How do they pay teachers? There's still a very big public sector in most African countries with very little privatization actually. And that would be a big challenge in, in moving to a pure crypto world.
Mike Townsend: interesting. Cause they, they, I assume there's a treasury, like the, the country will have some balance, but they, there's no buyer for that treasury to move into Bitcoin. That's the problem,
Timothy Nuy: right? Yes. And they have limited foreign currency, treasury. So they may have a treasury of local currency bills.
Mm-hmm. . Cause they could theoretically just print them themselves, but their foreign currency reserves are, are limited and it means in BCO managed for 10 years running off the US dollar. But then they ran outta money and had no other choice of, of reintroducing with the complete destruction of trust sort of related to it.
I think that's the main challenge that it would need to be. , it's an
Mike Townsend: interesting one. So it would you agree that this is sort of summarized by, it's the relationship of power in the sense of a government having power, usually backbone by military or physical power, but front end is like politicians and policies and then the, it's like a, it's a related issue, but different is the monetary supply and the, the value of the currency as it relates to.
The, like, the quote unquote power both hard and soft of the government. Like if, for instance, Zimbabwe went on a economic tear, they were, you know, growing super quickly, they had low corruption rates, they invested things centrally into the right infrastructure, like things were looking great, the currency would probably follow suit cuz the currency is like a, a way for external investors and, and internal to the country to like place bets on the future upside of a, of.
Centralized government itself. Does that make sense? Is that how you look at it
Timothy Nuy: or think about it? Yeah. That, that's effectively how it makes sense. And, and I mean the, the, the reality is, is that, you know, you need to balance those two, right? And I think that that's the challenge oftentimes we've seen. And I think, you know, some of the things you've mentioned are things that definitely need improvement when it comes to policy, sustainable funds in I.
You know, the role China has played is, is not just per se, only positive because I think, you know, the, the European and American money flowing into Africa has some ideological, ideological views as well, where they're funding it, but they're funding it with certain objectives in mind. Now, that's positive because I think it's fundamentally good for the continent, but sometimes it's perceived as negative because it can be seen as prescriptive to the powers at hand, right where they say, We'll give you this money, but you have to do 1, 2, 3, and four.
You know, the Chinese, for lack of a better words, don't really care. So they'll fund projects and as long as they get their economic returns that satisfy the requirements the Chinese have, they're not too fast. What, you know, the underlying countries then do over than with the project at. Which means that there has been sort of a selloff of resources and projects to the Chinese, where I think head countries complied with requests from the imf, you know World Bank, European instances to, you know, to how to conduct themselves.
They could have actually gotten those funds at economically better terms from, from those sources rather than from the Chinese, But it would've to go with con, you know, concessions on how they con conduct their.
Mike Townsend: Hmm. Interesting, interesting. I'd love to shift gears a little bit and ask you what you learned at the Fractal Labs during the Fractal Labs, when that was your main focus, or to what degree that is today.
This is the description I have is it's creating unique risk and AI modeling frameworks for the financial market. Can you talk to me a little bit about what. What Fractal Labs is and, and what you've uncovered through that endeavor.
Timothy Nuy: Absolutely. So, so it it, it's really a credit, you know, risk assessment tool where we do both credit scoring as well as risk reporting for microfinance houses.
The technology we, we build and design there is still the baseline of, of everything we do within conclusion also on the digital banking side. So I think, you know, it, it, it was extremely interesting. I. You know, one of the things we learned is our initial thesis was we, we really thought we could provide a, a one fit all solution for the African continent.
And the challenges we were running into was that a lot of the microfinance houses and banks had such offline infrastructure that running digital scoring tools became almost impossible because if people don't have a data lake, or at least the data warehouse, there is no data to score from. We realized that people oftentimes had business processes that weren't fully designed and automat.
So there was no plug and play where we could basically hang in the scoring PS and the credit risk assessment piece automatically. So those are very much, you know, some core components we learned. I think from a credit risk analysis perspective, you know, we really started realizing the amount of value we can extract from banking.
How people spend their money, what they do with it, how quick they spend off their month, and you know, how, what their propensity to borrow is. So I think we learn a tremendous amount. I think one of the challenges we, we also realized is that, you know, you have to have the right product mix for some of these tools to basically make sense in the frequent context.
Because if you give out a $5 loan, The cost of scoring almost becomes prohibitive. Mm-hmm. Because there is significant, you know, cost, you know, related to all of that, that data to be obtained. I think it was definitely one of our findings that's probably the most valuable data at the moment, is mobile money data in Africa, because it gives such a, you know, detailed breakdown of people's day, day-to-day expenses, behavioral trend, what they do when that you can read a tremendous amount out of it.
Whereas oftentimes bank statements are still very significantly. Salary, Cash out, cash out, cash out, empty. Where then actually the data doesn't really tell you so much because most customers in Africa live on a month toone basis. What you really wanna know is, is what they did with the money. Not just, you know, on which days they spent what amount, but very specifically the underlying spending.
Mike Townsend: When you say you wanna know what they do with the money, do you mean you wanna know what they spend it on? Or you want,
Timothy Nuy: like, we want to know, you know, what percentage of their income goes into rent, what they spend on eating out insurance. If they have a car loan, do they have insurance for it? Do they have health insurance?
At what day in the month do they run out? Do they keep reserves for later in the month? How often do they borrow? Do they have a propensity of longer term loans versus shorter term loans? Is there any gambling? You know, do they transacting cash or via mobile money? How much, you know, money disappears for sort of unclear purposes, which may be helping family or, or, or anything of the likes, but, but not driving productivity.
Those are our really, those things we look
Mike Townsend: for. It's interesting, I, I've talked to a couple people that are in the credit business in the US and one of the things they talk about is the regulations on the, the types of things you can't use to assess someone's credit worthiness. Is there a similar established regula regulatory policy, or does it vary country by country, or is there, is there really not much that you can't use?
Timothy Nuy: No. So I think, you know, regulation on the continent isn't really focused yet on the use of data per se. It's still very much focused on, okay, can people afford loan? Mm-hmm . And are you trading fairly? So the country that have regulation is very affordability focused. So someone who earns a thousand dollars, you cannot not give 'em a hundred thousand dollars loan.
Some countries have take home pay regulation. If someone makes say, a thousand bucks, at least 400 needs to still be left over after loan repay. So that the person basically can actually live a decent life and not be stuck in, in debt trips. But when it comes to, you know, user funds sorry, you know, data you can use, there's still limitations.
I believe, you know, if I recall correctly, and it's a long time I looked at it, but in the US if you get declined or approved for a loan, you have a right to ask the bank why exactly you got declined or. And they should be able to give you a paper trail and there can't be any sort of black box logic in it or anything that that potentially could be seen as as discriminatory or, or inappropriate.
Whereas. You know, we are able to, to effectively take into account anything. There's no such regulation prohibiting us or, or limiting that factor, and we have no obligation to explain someone, whether you know, why we gave them a loan or why we don't gave them a loan. We ourselves try and be consistent, Explain people why we didn't give them a loan if we do not, just because we believe that it helps build transparency, it helps build relationships, but obviously the reality is, You know, there's many, many factors involved.
We can't always give a clear cut answer and a clear cut explanation. Because someone, there's a combination of factors. Sometimes it's, it's partially macroeconomic driven where, you know now with the increasing interest rates, you know, and, and, and the inflation, the, the gasoline price. We're very much more conservative than we were before with the credit granting because we foresee that consumer spend is gonna be more challenging.
People might be into financial difficulties in the near term, which means they need those reserves to be able to, you know, pay for things. And it's, it's critical that we provide for that and ensure we can actually, you know, assist people with, with the things they.
Mike Townsend: Hmm. And do you, do you see that change in the market as something that is happening relatively at the same time across the world?
Does the US largely influence interest rates and inflation? Like to what degree is African countries influenced by the US or China or some combination of those in other countries?
Timothy Nuy: So I would say that if the US has major. or Europe or Asia, you'll see major movements in Africa as well. But that doesn't mean that if the US does not have major movements, that there cannot be major movements in Africa as well.
Sure. So, So like right now where you see a global increasing of rates in the us, Africa is following suit and effectively keeping its margin to be as stable, to maintain currencies, et cetera. Also moving interest rates. But there's can easily be situations where the US will keep the in rates flat, but specific countries have macroeconomic conditions that make them increase the interest rates.
Similarly with inflation, it's very much country by country. A drought in one country can have a major impact. So there's quite a lot of factors that can give additional factors really driving that on top of just US impact. But yes, I mean from a treasury perspective, that does have a major. And then I think food prices are extremely critical in Africa's their big proportion of costs.
Gasoline prices are important specifically cuz cuz energy is linked to it. So their global trends will filter true and then it's also indirect because with you as interest rates going up, less funding will effectively be available for Africa. There is, you know, the second you go into sort of a, a higher trade regime, there is generally a safe haven trend in, in capital markets, people going for more safer investments, which means that the appetite to potentially do African credits will be lower than it would've been, you know, a couple months prior when that wouldn't yet have been the case.
Mike Townsend: How, how many of the countries in Africa have centralized credit bureaus or any sort of centralization of. .
Timothy Nuy: So there is, most of the countries have something mm-hmm. , But the data pretty bad is, Yeah. Outside of South Africa, I was say data's pretty bad. It's not per se, complete. A lot of countries don't have compulsory filing, so there's a lot to, to be left and, and don about that.
I think there's still a very much a compet, a competing culture in between financial institutions, whereas actually I think you. A collaborative culture would be better for many of these things. And I think you've, we've seen the rest of the world moving to collaboration in, in many of these facets. And I do think it's something that's now being pushed on the continent as well.
But it's not something that's been there historically.
Mike Townsend: And what's the primary. Incentive, if you think about it from an incentive standpoint for someone to pay back the loan. So you take out a thousand dollars loan, someone's on the fence, they're, they got a debate, Do I pay my my loan back or do I buy this, these shoes or this clothes or this?
Timothy Nuy: No, no, absolutely. That's a very good question. So I think there, there's carrot and stick. So carrot is very much. You know, you want another loan hereafter, pay this one back. You'll qualify for more in future, and that's probably the best incentive. Then stick goes from report to credit growth as exists. If you don't get reported, you can't get further credit.
But security is also important. So for us, we have either what we call sort of an improved collection channel where we can either directly strike your bank account and take the payment straight of it, or we partner with an employer to withhold the installment of your. Or if we don't have improved collection channels, we work on either having a vehicle or a motorbike or a physical asset as security.
And I think that's the, the reality today to basically overcome some of the challenges that have come from the limitations in the, the credit bureaus that you look for secured assets that you can effectively say, Look, if you don't pay, you'll lose your assets. Which obviously has a negative impact on people's livelihood and ability to earn.
But it's, it's probably one of the biggest challenges. And it's also about relationship managing, being actively on top of it. There's a big part of positive reinforcement or negative reinforcement, Both, I guess. So if someone defaults, it's important to go through the whole process. Cause otherwise it'll spread like wildfire and suddenly people think, Oh, it's okay if I don't pay these people.
Nobody minds, nobody will ask. And I think that's something that we've really learned over time is the importance of actually setting those standards, really showcasing people. If you don't pay us back, we will after the money and we won't stop until we actually ensure or we get it back, go through a full legal process.
But that's still a big challenge. And then probably also one of the reasons why, you know, Credit Hess held back relative to rest of the world. And,
Mike Townsend: and is that part of the strategy of expansion for these partners with employers is you're like, Hey, maybe the employer's great for getting new customers, but it's primarily a mechanism for.
Timothy Nuy: Absolutely. It's primarily a collect version, basically. You know, if, if you weren't worried about collecting, lending and effort would be very easy, but you'd actually be running a donations business. A lending business, , that's, Yeah. Everyone once alone, you know, the difficulty is finding those people that are also likely to pay it back.
And I think that paying back it, it has two components. It's it's willingness, you know, does someone want to repay you and it's ability and you need both of them to be right. Because if someone doesn't have the money, you know, then they're never going to repay you. Mm-hmm. . And I think that willingness factor is critical.
Whereas if you look at sort of the, you know, for example, the European context, I mean it's, it's actually quite interesting how some of those payday lenders in the US and. Made incredible amounts of money by just charging interest over interest, over interest on a short term loan. And people just pay those ridiculous loan balances back, you know, no questions asked.
The fact that someone had to pay back multiple times to capital, you know, they, they just say, they sort of say, Well, I shouldn't have taken that loan. Right. It was stupid of me. I made a mistake I didn't read to. The same thing on the continent. You'd get a reply like, No, no, but I was cheated. These terms were unfair.
So there's no basis why I should pay because I've already paid more than the principal. So the fact that I signed the contract, you know, this was just unfair. So I think that's definitely something that's, Different in that sense,
Mike Townsend: it's like a, it's like a, it's like a culture wide difference in the recognition or respect in the legal framework to some degree.
Right. It's like term what, to what degree do people value or respect the terms of service, which terms of services, like a pseudo legal framework. It's a private company, legal framework.
Timothy Nuy: Yes, absolutely. I mean, and it's really a cultural thing, I think first and foremost. Absolutely. Hmm. That's
Mike Townsend: interesting.
Anything else you want to add? I know you have such a unique perspective in the world. I was so excited to chat with you. Living in South Africa around this way.
Timothy Nuy: Yeah, it's, it's, it's been very exciting chatting to you. What I would say is that, you know, the more capital, the more you know, intellectual financial capital goes towards the content, people doing things, whether it's investing, whether it's actively running product projects, the faster the, you know, the golden will develop.
And that's ultimately what it needs is, is people investing their time and. to really drive the continent forward. And then that's what one of the things that excited me is that we're in a unique position, we're doing well and, and doing good, are closely aligned just by virtue of where the continent is.
almost any business you run here, if you price fairly, has a big inherent social mission. Cause you're creating unemployment that wasn't there. Capacity wasn't there. And I think that that's really exciting. And I think, you know, we, we can't spread that enough and, and, and really sort of stress that, yes, Africa may be perceived as risky, but one of the interesting things on the content is if you execute a business plan well, and you do basics right, based on what, what the other opportunities and offers are on the c.
You're likely to do well. So in as much as you may have higher macro political risk, there's probably lower execution risk than, you know, some of the opportunities in, in the Western world because there's not 10 people trying the same thing. There's one or two at best. So you know, the more people kind of think about that, realize that, and indirect capital to the continent quicker, we'll, You know, real significant growth.
Mike Townsend: Quick question, this is a little bit of a tangent or side off, but how do you see, are you concerned to what, to what degree are you concerned about the economic and industrial development starting to destroy or take away natural wildlife? Reserves and, and areas that, you know, Africa has the most amazing wildlife.
Like is that a, is that a thing that you think these countries highly value and will really stand by? Or do you think it's like a real risk as they develop and they start to expand industrially?
Timothy Nuy: So, I think a couple of things that are very positive impacts. First of all, some of the African countries, Botswana one that come to.
Have really seen the potential of, of what that wildlife and that ecology can do to tourism and can actually use it as a channel to monetize. So that's been a big factor. Then the second part is that, you know, globally there's a big focus on, on wildlife preservation where, you know, lots of money can get behind that and actually support that and, and kind of, you know, you can preserve things in Africa that weren't even a consideration when the same.
Industrial development was happening in, in the rest of the world. So I think that those are our big pluses. I think the bigger risk isn't so much just, you know, fun article, systemic risk on, oh, you know, Africa doesn't care about the wildlife or ecology, but the bigger risk is the individual risk with not having the capacity to properly secure those places and individuals just seeing, you know, the potential of what poaching can get.
So they definitely need more capacity, but I think there is very much a conscious, you know, belief in, in what that can do for continent. And I think when Europe and the US went through similar industrial, you know, revolutions, no one actually cared about the environment. No one was paying any attention to it.
So in that sense, I think it, it's in a much better position than, than anywhere else in the world was when they went through such development. I think it is a consideration, which is, I guess, more than, than it's ever been anywhere else.
Mike Townsend: Yeah. Well, it's also just so much more important because of how few places there are left on earth that are.
With the vastness and impressiveness of it. So yeah, I donate personally to, to, I have a friend in Tanzania and just follow a few accounts on Instagram and just donate to those, those places cuz it's just, it's such a magical and important thing to preserve. Thanks so much for hopping on Timothy. It seems like things are going really well and sounds like you guys are in a great position to expand.
Are you actively writing on, on Twitter or any blogs anywhere that people can find you personally online?
Timothy Nuy: Personally, mainly just use LinkedIn. Mm-hmm. But we are, as a company, we, we do use LinkedIn, Twitter, Instagram, and, and try to be active. It's something that, that sometimes, Leaves to be, be improved, but we're probably most active on LinkedIn in, in all honesty.
Cool. But I guess Twitter might now be the platform to follow with, with all the recent changes.
Mike Townsend: Yeah, yeah, yeah. It'll be interesting. So conclusion is the place to go and Tim, thanks so much man. Congrats on everything and talk soon.
Timothy Nuy: Thank you very much.
Mike Townsend: Cheers.
Timothy Nuy: Cheers.