One of the biggest hurdles that confront start-ups is lack of capital and operation funds. Most of them run into a financial storm when their clients do not pay up promptly for services rendered.
However, a new firm is bridging this financial gap by providing SMEs easy and quick access to financing without the need for collateral that banks usually demand.
Umati Capital, which was started three years ago by Mr Ivan Mbowa and Mr Munyuti Waigi has steadily made key progress in a market whose prospects were not that promising when they set off on their business journey.
With a capital injection of only Sh4 million, the duo began by offering credit back in 2013. Mr Mbowa had just quit his job as the assistant vice president wealth management at Citi Bank.
Umati Capital has so far advanced at least Sh180 million to businesses since inception.
“I had an eight-year banking experience and thought I could explore self-employment,” Mr Mbowa told Money.
“I met Waigi in 2012 and we began exploring the market gaps on how SME could access capital without collateral. There was a very huge under-served segment then.”
Mr Mbowa says they then created a platform that uses data and technology to allow SMEs in agri-business get financing through an invoice-financing model based on a tripartite agreement.
How does it work? The firm enters into a tripartite agreement with the SME and those who buy their products (retailers). Umati Capital will then advance up to 80 per cent of the value of any shipments that is confirmed and accepted by the retailer as long as the retailer pays full amount of invoice into the Umati Capital account.
Umati Capital seeks to provide working capital which it believes is the key pillar of growth for an SME. Majority of small and medium businesses are unable to get cash fast enough to continue running their businesses.
For instance, Umati Capital has financed an SME who exports French beans to wholesalers and supermarkets in Europe. The invoice financing agreement in this case is made with the wholesalers, Umati Capital and the SME.
Umati also creates mobile platforms that ease the supply chain process for start-ups and enable them to get payment on time.
“Take for example our French beans exporter who do shipments worth Sh1 million twice a week. When shipping they do not get paid for at least 30 days. We shorten the time it took to receive the money from their buyers to a record 24 hours,” Mr Mbowa says.
Their automated platform has managed to improve efficiencies in procurement by 9 per cent.
Retailers or wholesalers who buy from farmers or SMEs have experienced increases in purchases by up to 50 per cent because of the seamless supply chain. Umati also ensures that mid-sized businesses have digitised their services, unlocking cash for immediate growth.
The two confess that setting up the business was very tough and the first few months were the most trying moments. “We were trying to prove that a concept that we had in mind could work. We even pitched opportunities for businesses as large as Sh100 million, yet we only had Sh4 million for all our operations including expenses,” says Mr Mbowa.
Umati has gained confidence among clients by honouring every commitment, even though getting customers was difficult at inception. Most customers wanted proof that the firm already had good business.
The firm has built a lasting relationship with Eldoville diaries, which was among its first customers. “They receive milk from a large pull of farmers in Nyandarua. We had to create a platform to enable their suppliers to access working capital against what they are owed,” says Mr Mbowa.
Umati Capital then saw the need to expand its services beyond the diary market into macadamia, cashew nuts and other fresh produce like mangoes.
“When we began, we worked more with bigger customers now we concentrate more on the smaller customers. We were dealing with companies that take 50 million but now we are helping companies that take as much as Sh2 million,” said Mr Mbowa.