Nigeria: Start-up connects investors with SMEs that need funding

The Sycamore team.

The Sycamore team.

Access to funding is a significant challenge for many small- and medium-sized enterprises (SMEs) in Nigeria. The CEO and co-founder of Sycamore, Babatunde Akin-Moses, identified a business opportunity in providing peer-to-peer lending to entrepreneurs.

“From available data, we found that of all the credit given in the last few years, only about 1% was given to SMEs in Nigeria. Many of them do not have access to funding. I believed it to be a good business opportunity in a market of this size.”

The CEO first worked in a multinational oil and gas firm and later as a consultant with global consulting firms KPMG and PwC. He came up with the idea to set up a lending company while studying for an MBA at the Lagos Business School. After gaining experience working with a fintech company in Nairobi, Kenya, he returned home in 2019 and created Sycamore. The company now has a large portfolio of clients, 70% of which are SMEs.

Building the business

The company was designed to disburse business, individual and student loans to those who struggled to access credit through other means. It makes money by taking a share of the interest repaid by borrowers, while the lender takes the rest. However, securing enough capital to begin lending was a major hurdle. Sycamore set up a peer-to-peer lending platform to connect investors with borrowers. “We researched how to get capital and opted to reach out to connections that wanted to invest. We did not have to use our own money but ensured the process worked so well that anyone who invested could get their money back.”

The co-founders put their savings together, and friends and family contributed to the business. Old classmates who liked the idea also invested in the company. “Looking back, we could have spent a little more time talking to investors and developing the technology, but we started with what we had at the time, and there are no regrets,” shares Akin-Moses.

At the outset, there was a lot of direct marketing. With time and through referrals, the company grew from a network of old schoolmates and colleagues to other lenders. Sycamore currently has two types of investors: high-net-worth individuals and middle- to senior-level employees who earn enough to invest in the SMEs on Sycamore’s platform.

Initially, the company struggled with the workforce as there were not enough resources to hire experienced staff. It had to settle for fresh graduates by selling the business idea to them. “We could not pay them what they were supposed to get. The good thing is this model helped us to groom many young people, some of whom are still with the company,” he explains.

Growing a customer base

The company typically serves businesses with 10 to 20 employees that require loans but are not big enough to approach banks. “Our focus is on SMEs. Clients sign up to invest or borrow from the platform. We then pair them together. We used to allow investors to choose whom to lend to; now, we match the investor funds with qualified borrowers ourselves. However, lenders can disburse loans directly to friends and family themselves, using the “Loan Friends” feature on our mobile app, without us getting involved at all with the client,” Akin-Moses says.

The industry is competitive, so the company aims to stand out with turnaround time and quality of service.

Dealing with challenges

Like other peer-to-peer lending companies, Sycamore struggles to gain the trust of investors. “Owing to the nature of the business, people are hesitant to invest.”

Growth is another challenge. Despite decent revenue and 60 staff members, the company is still pushing the barriers to becoming a big player in the local and international market. “We are working on solidifying our position in the market. This will enable us to raise funds from the international community.”

Expansion plans

The CEO says they plan to expand into the broader West African market. “We see ourselves as a pan-African business with Nigeria as our first stop. We aim to spread across West Africa this coming year and beyond the region in the next two years. We feel these peer-to-peer lending opportunities are present in other countries of the continent and are giving ourselves to 2024 to be operational in at least 20 African countries.”

The company sees opportunities in decentralised financing such as the cryptocurrency market, which has become one of the biggest trends in Nigeria. Its investors are demanding crypto products. “There are valid reasons for this but we are still watching that space. We want to stay on the right side of regulations,” says Akin-Moses.

Sycamore is also planning to invest in the buy-now, pay-later (BNPL) space, a growing sector in Africa. This type of financial service allows individuals to pay for goods over a period of months and the service provider covers the initial cost.