In the dynamic landscape of African international trade, a prevailing challenge looms: only 30% of trade volume finds financial intermediaries in banks. This stark financing gap disproportionately affects small and medium-sized enterprises, with their larger counterparts absorbing the lion’s share of the limited capital available.
The opportunity to reshape African trade becomes clear when considering the annual value of international trade volume – A An amazing $1.2 trillion. Most importantly, this untapped market highlights the need for startups that can capitalize on this. One of them is leading edgea Lagos-based fintech company, recently raised $10 million in a debt and equity seed funding round (the former contributing over 70%) to enable the growth of African cross-border trade.
Founded in 2021 by Money on meFrontEdge provides SME exporters and importers with the working capital and software tools needed to facilitate their international and cross-border transactions. Over the past decade, the former McKinsey consultant has come up with innovative solutions to bridge the SME financing gap in Africa, drawing on a career focused on digital transformations for top-tier banks, particularly in Nigeria, South Africa and Morocco. FrontEdge is the culmination of his experience, says the founder, who also worked in private equity at Development Partners International (DPI), in an interview with TechCrunch.
“I’ve spent a lot of time advising banks on financing SMEs, but I think the result I’ve seen is that the balance sheet has been largely allocated to large companies. The financing process in banks is outdated. You have credit-based lending,” Ali said. guarantees, which means that underwriting SMEs could be considered unprofitable.” Who founded the company after obtaining an MBA from Harvard Business School.
“So it makes sense to digitize these processes and customize them for SMEs, and that’s the push I tried to advise on before that led to FrontEdge. Our focus was on African SME exporters specifically. And in this area of cross-border trade, we saw a big gap.” In terms of financing and the opportunity to essentially guarantee cross-country transactions.
The challenge identified by FrontEdge can be seen in the pre-financing model for agricultural commodity traders, for example. These traders provide money to smallholder farmers and oversee the entire process from storage to transportation, which extends over a period of 60 days. There is then an additional transit period of 40 to 60 days, depending on the jurisdiction, before payment is made when the goods arrive at their destination. This results in a significant cash commitment over a 120 to 180 day cycle for issuers.
Unlike banks, FrontEdge provides seed capital to these issuers Transactional subscription basis without requiring collateral. However, Alley said the timing of his intervention varies based on the risks he is willing to take. According to him, the startup typically operates when the goods are on a physical ship, or sometimes, in a warehouse, with average payment terms set between 60-90 days, which allows the fintech to finance the working capital gap, thus accelerating receivables and allowing Exporters to enter into more transactions.
While FrontEdge initially developed its lending platform first, it has evolved to become more robust. It is connected to various databases to provide insight into the dynamics of cross-border trade between buyers and sellers and ensure external credits of buyers. After completing several deals last year, the startup noticed that these entities were receiving dollar inflows and recognized the opportunity to address challenges related to capital controls and high fees within the banking system. As a result, fintech has provided support by facilitating the establishment of offshore accounts abroad, allowing dollar proceeds to be converted into naira, the local currency for many of these exporters.
Later, FrontEdge, which lists the likes of JP Morgan and Provideus Bank as partners on its website, operates as a vertical bank (consisting of financing, cross-border payments and offshore accounts) tailored to the needs of African traders. At the same time, it provides software tools, including logistics management, cargo insurance and document management, to exporters to complement their financial offerings. The company’s adjacent competitors in Africa include freight forwarders such as Jetstream and Send; Those with similar business models, e.g Monday And Marco Financial, Serving foreign markets such as latin america.
“It’s a volume game, and we’re basically trying to do as many trades as possible, given how tight margins are. So what you’re seeing in Europe and other jurisdictions is that these traders are getting this financial support, which means they can give Longer payment terms for overseas buyers and to be more competitive.”
“So we provide the African exporter with the financing and tools to compete with the exporter in South America, Europe or the United States. For these big buyers, all that matters is the quality of the goods and the price. So we can give them financing where they can offer the right terms and then have a level playing field.” With many of these buyers globally.
FrontEdge claims that its clients, SME exporters – have achieved 20% month-on-month growth since its launch – They were able to triple their sales on the platform. The company’s revenue comes from the spread of transactions it finances. Alli did not disclose FrontEdge’s revenue growth, reiterating that the startup emphasizes avoiding losses and demonstrating successful payouts. To date, FrontEdge claims to have recorded a zero default rate after over-performance 50 contracts, each including multiple trades and invoices.
Looking to the future, FrontEdge plans to use its capital provided by its lead investor TLG Capital along with other backers, including digital freight forwarder Flexport, To recruit more talent, expand its financing products in Nigeria, Ghana, Ivory Coast and Kenya, and launch additional products as it aims to diversify its activities. Revenue streams go beyond financing. “TLG is proud to support FrontEdge in its mission to help African SMEs thrive, serving as a critical conduit for providing African exporters access to capital and financial empowerment. FrontEdge is strategically positioned to address an important problem that needs to be solved,” said Johnny Boxley, investment expert at TLG Capital. African traders can effectively participate in global trade, and we believe the leadership will implement this vision.”