Digital bank Umba acquires majority stake in Daraja

The investment by UMBA aims to strengthen Daraja MFB’s business model, supporting the digitisation of Daraja MFB as it moves to providing ‘anytime anywhere’ services to its customers. According to Central Bank of Kenya (CBK) officials, this strategy is aligned to its vision of a microfinance banking sector that works for and with Kenya.

Daraja will give Umba a stronger presence in the country’s financial sector and an opportunity to offer more targeted services, while also giving the microfinance a lifeline – in an industry that has been disrupted by digital lenders.

Umba offers access to free accounts, peer-to-peer (P2P) transfers, bill payment, loans, and interbank transfers. Daraja, meanwhile, lends to micro and small enterprises in Africa.

Umba’s expansion in the African market

In Africa, banking markets differ in terms of sizing, infrastructure, and banked population depending on the part of the region or the country. Some markets have already seen improvements in banking penetration, with Kenya’s rates equaling 82%.

In April 2022, Umba raised USD 15 million in Series A funding so it can invest in expanding to new markets including Egypt, Ghana, and Kenya, where mobile money is prominent. At that moment in time, Umba said it aims to bring a wide range of transparent and accessible financial products to those underserved by legacy banks across Africa, as 57% of Africans do not have any kind of bank account, including mobile money accounts.

Nigeria, Africa’s largest economy with a population of 200 million, is home to Africa’s largest fintech ecosystem and an estimated 200+ fintech standalone companies, according to research by McKinsey. Banking remains an attractive sector, with over USD 9 billion in value pools, but a youthful population, increasing smartphone penetration, and a focused regulatory drive to increase financial inclusion and cashless payments, created space for a developing fintech sector.

Between 2014 and 2019, Nigeria’s fintech scene raised more than USD 600 million in funding, attracting 25% of the USD 491.6 million raised by African tech startups in 2019 alone – second to Kenya, which attracted USD 149 million.

Offering microfinance services in Africa

Over 3 billion people in developing countries are still without effective access to loan and deposit services. The problem is particularly acute in Sub-Saharan Africa, where only between 5% and 25% of households have a formal relationship with a financial institution. The region is also home to just 2% of the world’s microfinance institutions.

Microfinance is about providing financial services to the ones that are traditionally not served by the conventional financial institutions. Three features distinguish microfinance from other formal financial products: the smallness of loans advanced and or savings collected; the absence of asset-based collateral, and the simplicity of operations.