On March 19, 2024 Envest Plus, the sister fund of Envest Microfinance Fund, made its debut investment in an inspiring financial inclusion organization called FLOW Uganda (FLOW). FLOW uses a unique tech + touch approach to reach thousands of mobile money merchants with tiny loans between $60 and $1,300, allowing them to optimize their cash flows and grow their businesses. The investment in FLOW marks an expansion beyond Envest’s scope of lending exclusively to traditional microfinance institutions, paving the way for other innovative financial inclusion companies to gain financing from Envest.
Mobile Money in Uganda
Mobile money has become a transformative force in Uganda, revolutionizing the way financial transactions are conducted in the country. With a significant portion of the population lacking access to traditional banking services, mobile money platforms have bridged the gap, providing a way for everyday Ugandans to transfer money, pay bills, and even access credit services. Mobile money has been especially transformational in rural areas, where banking and even MFI infrastructure is limited.
To use mobile money, Ugandan customers can work through mobile money merchants, who are often village shop owners who sell a variety of household goods such as basic food and hygiene products. If someone wants to transfer cash to a family member in another region, they first deposit the cash with a mobile money merchant, who exchanges it for e-money (also known as ‘float’). This e-money can then be transferred to the family member. Conversely, when the family member wants to withdraw the transfer, they visit a mobile money merchant who exchanges the e-money for cash. The role of the mobile money merchant requires astute management of cash flows. If the merchant runs out of float or cash, they might not be able to fulfil transactions. It is estimated that 14% of mobile money merchant transactions in Uganda are denied due to insufficient e-money working capital.
Enter FLOW Uganda
FLOW Uganda provides working capital float advances to thousands of mobile money merchants, allowing them to optimize their cash flows. By taking a float advance, mobile money merchants can service more transactions. Rather than charging interest on the float advance, FLOW charges a 20% profit share on the excess profits the mobile money merchant will make with the float advance. This ensures that the mobile money merchant retains 80% of the profits and can grow their business.
FLOW uses a unique tech + touch approach to reach its clients. Loan decisions are based on the Flow Liquidity Engine, a proprietary algorithm that analyzes at least six months of mobile money history of each applicant. However, unlike many digital-only lenders, loan decisions also contain human inputs from the Relationship Managers (think Loan Officers) assigned to each client. All clients are visited by a Relationship Manager before they can become borrowers of FLOW, and the Relationship Manager’s assessment factors into the initial loan decision. After taking an initial float advance, applying for future float advances can be done within minutes with funds disbursed right away. This means that the mobile money merchant can spend more time focusing on her business rather than applying for financing.
A unique organization
FLOW Uganda is distinct from Envest’s other MFI partners because its portfolio is comprised of a single loan product lent within the mobile money industry. Traditional MFIs tend to have a suite of loan products that are lent across multiple sectors and business types. FLOW also shares many characteristics with digital lenders such as using an algorithm to generate loan decisions, and disbursing loans digitally within minutes of applying. Although FLOW has common features with our MFI partners, its business model is distinct enough that Envest Fund (the original fund) would not have been able to lend to it due to Envest Fund’s narrowly defined mandate. Part of the reason for launching Envest Plus (the second fund) was to open Envest’s financing up to mission-aligned organizations such as FLOW Uganda. Envest Plus is able to have up to 25% of its loans placed with financial inclusion organizations that are not traditional MFIs. This loan to FLOW Uganda is a first step and will pave the way for Envest Plus to work with other innovative organizations that are committed to furthering financial inclusion in the developing world.
We at Envest are delighted to be partnering with FLOW Uganda. We look forward to the further digitization of the Ugandan economy thanks to this fruitful partnership.