Nigerian Fintech, PayHippo, Raises $1million to Fund More SMEs

Payhippo, a Nigerian artificial intelligence-driven lending platform that provides loans to small businesses has raised $1 million in a pre-seed round.

Investors in this round include Ventures Platform, Future Africa, Launch Africa, and Sherpa Ventures with participation from international investors like Hustle Fund and Mercy Corps Ventures.

Despite its significance, the small business sector in Africa remains largely underserved by commercial banks. 

In Nigeria, a large percentage of the population operates small to medium-sized enterprises (SMEs) in what is referred to as the “informal economy”. The informal economy accounts for a massive two-thirds of the entire economy and creates far more employment opportunities than the formal sector. Still, most small business owners in the country find it difficult to access formal financial products or services. ​The same can be said for Africa in general.

Most of these businesses are creditworthy, but traditional banks don’t lend to them because credit scores don’t exist and collateral requirements are too high. The bulk of SME transactions is predominantly cash-based, making it difficult to establish a credit footprint, coupled with a poor culture of financial record-keeping by business owners. 

Founded in 2020 by Zach Bijesse, Chioma Okocha, and Uche Nnadi, Payhippo’s goal is to serve the 40 million small and medium-sized businesses in Africa that are unable to gain access to the funds necessary to grow their business.

Since its launch, Payhippo has disbursed N1.44 billion in over 2,600 loans to businesses, most of which are community grocery stores or small retail shops. The startup claims to have recorded a 97% repayment rate and is currently making a 25% M-o-M revenue growth.

The startup plans to use the fund to expand its reach to more Nigerian cities and also build its team of engineers. Aside from this, it plans to hire a Head of Finance to match the business's current growth rate.

The inability to secure lending hinders the growth potential of SMEs and solving this credit gap has become a market opportunity that many social entrepreneurs in Africa are seizing. For instance, the market size for SME lending in Nigeria is estimated at $46 billion, and Payhippo’s founders have a personal connection to this market opportunity.

“I helped run my family’s business in Nigeria and I know how tough financing can be for SMEs in Nigeria,” said Chioma Okotcha, PayHippo co-founder. “That’s why I went to work in microfinance policy. But I saw that there was still such a big need for SMEs in Nigeria and the continent.”

“As a fintech company, the tech component of what we build is so important, because that’s really what drives how we can access the credit readiness of that SME and how much to give them. The tech does all this calculation in the backend, works out the underwriting, evaluates who the customer, and we’re able to give a loan that is within a safe range,” she said.