ImpactAlpha, October 12 – It was looking like a stellar year for Tugende.
The Kampala-based social lender, which finances the purchase of motorcycle taxis for Ugandan and Kenyan “boda boda” drivers, was in solid growth mode.
Tugende has made more than 35,000 motorcycle loans in the East Africa countries since launching 2012, helping thousands of drivers improve their livelihoods and build their assets. Of those, 12,000 loans have been fully repaid. The company has more than 3,000 repeat borrowers.
Back in March, the company was close to a deal with Toyota Tsusho’s Mobility 54 venture fund for a new round of financing to help the company to expand geographically and build out new products and tools for borrowers.
And then—well, we all know what happened next.
Uganda imposed a particularly severe and long lockdown as soon as the first COVID cases appeared in East Africa. The landlocked country only reopened the borders with its neighbors last month. Local transport was banned for months. Tugende’s borrowers’ lost their main source of income. With no income, most couldn’t afford their loan payments. Without loan payments, Tugende struggled to pay salaries for its own staff.
“Things got really bad in April. People were selling their furniture,” Tugende’s Michael Wilkerson tells ImpactAlpha. “We understood that, however hard it was for us, it was worse for our clients.”
Listen to Tugende’s Michael Wilkerson in a 2016 interview with ImpactAlpha’s David Bank.
This month, Tugende finally completed its $6.3 million Series A round of financing, led by Mobility 54 and including Global Partnerships’ Social Venture Fund, Denali Venture Philanthropy, the Segal Family Foundation, and new angel investors. The new capital will help the company rebuild its cash cushion, which was obliterated by the COVID lockdown, and to begin debt fundraising for its next phase of growth.
In the intervening six months, Tugende moved quickly to offer emergency grants to borrowers, pause loan repayments and impose seniority-based salary cuts on its own staff. That made it possible for Tugende to quickly restart once the lockdowns ended and to almost immediately begin pursuing growth opportunities. By August, revenues had almost rebounded to pre-COVID levels.
Tugende’s rebound, and its prospects for growth, provide a window into the full range of risks and opportunities facing small-business lenders and the micro- and small businesses they support, as emerging markets begin to emerge from COVID-caused disruptions.
Wilkerson says he and Tugende’s senior leadership knew that the company had to put the safety and wellbeing of its customers and staff first to have even a chance to rebound.
Wilkerson and his team got a sense that COVID was going to have a global impact even before the lockdown. Tugende was experienced disruptions in the supply chains for its motorcycles; many components come from China. Uganda itself went into official lockdown and sealed its borders on March 29.
“That’s when public transport stopped,” recalls Wilkerson. “Motorcycles were only allowed to do deliveries. No passengers.”
The company almost immediately faced a 90% drop in loan collections, which funded Tugende’s operations, including salaries. It wasn’t sitting on much of a cash buffer. “Even impact investors were telling social enterprises and nonprofits to cut costs, to cut back everything,” Wilkerson recalls.
Tugende went against the grain. “We couldn’t control when Uganda or Kenya would reopen, but we felt we had good growth potential in 2020, so we didn’t want to do layoffs or furlough workers.”
Instead, it sent most of its 450 employees to work from home. Everyone who could became a customer service agent, focusing on checking in with borrowers. Tugende’s leadership promised staff it would avoid layoffs as long as possible. Come May, if Uganda’s economy wasn’t fully reopen, it would initiate temporary salary deferrals, starting with the executive team. By June, those deferrals would go company-wide, with executives taking a 30% cut, while pay for the lowest paid workers would be cut by 5%. “We were trying to protect our most vulnerable staff,” Wilkerson says.
As Tugende’s staff began checking in with borrowers, the severity of their income loss became clear: within the first two weeks lockdown, 72% already needed help paying for food.
The company communicated to clients that those who wanted to continue repaying on their loans could; for everyone else, there would be no penalties for not paying. What’s more, the company told borrowers to hold onto the motorcycles and to continue earning income however they could. For those who did want to use their bikes during the lockdown, Tugende offered to store the motorcycles.
A small number of customers continued making payments throughout the lockdown, with a few paying off their loans. “They are very special people,” says Wilkerson. “As soon as I catch my breath, I want to go meet some of them.”
In April, Tugende used $150,000 of its cash on hand, topped up by funds volunteered by staff, to make “unconditional cash transfers” of $6.50 into each of its clients’ mobile money accounts. The small grant was enough to cover a week’s worth of food for one person or a few days of maize and beans for a household.
It was a small gesture of goodwill when little relief was coming from the Ugandan government. Other lenders were aggressively trying to collect on debt. Other vehicle financiers were impounding vehicles.
“Our ethos is about human relationships. When they succeed, we succeed. We wanted to show our customers that we intend to deepen our relationship with them long-term,” Wilkerson explains.
The lockdown in Kenya was less severe and a small number of collections continued to trickle in from borrowers. Tugende negotiated with its own lenders, asking them for patience, deferments on principal and interest, and for approval for its cash transfers to borrowers. It also got a temporary break from the Ugandan tax authority.
“That all helped lower our expenses during those months,” says Wilkerson. “But we weren’t able to secure any relief or recovery funding.”
Despite the worrisome financial outlook, Tugende’s executive team believed in the company’s post-lockdown growth potential. It used the summer months to push ahead on strategic initiatives, like a customer-service app. The app is the focal point for its long-term customer engagement strategy. The portal lets borrowers check their loan balance and make payments. Later versions will offer new products and features, like family medical insurance and asset financing for cars, boat motors and farm equipment.
“We have seen more competition emerge lately, so we wanted to make sure we could come out ahead as others were just starting to reset,” Wilkerson explains.
Tugende is rolling out an internal credit score for borrowers, most of whom otherwise have no access to credit products. Customers will get weekly updates on their “T-score” and will be eligible for loan discounts with consistently good or improving scores.
“We are moving in the fintech direction. Having a better digital ‘touchpoint’ with borrowers will be a big part of our plans,” says Wilkerson. “It’s a way to offer borrowers discounts, credit and perks and will help us derisk our lending.”
Uganda began lifting internal lockdown measures in June, but boda boda drivers weren’t able to start transporting passengers again until late July. To help borrowers get back on the road as quickly and safely as possible, Tugende offered bike maintenance checks and tune-ups on credit. As borrowers resumed making loan payments, the company reached its first revenue milestone in August. It started repaying deferred salaries in September.
Because of its speedy rebound, Tugende will be able to use most of the new equity round to begin making new loans to some of the 2,000-people on its waiting list, add the new products and services and shore up its cash reserves. The company is launching a round of debt fundraising, for which the company is hoping to secure between $30 and $40 million.
Wilkerson credits Mobility 54 for sticking with the company during its most difficult time. “Toyota Tsusho is a long-term investor,” Wilkerson says. “Walking back on the deal never once came up because of COVID”
The crisis confirmed Tugende’s own emphasis on long-term customer engagement and relationships as well.
“As much as we want to serve hundreds of thousands of new clients, our core focus is keeping people with us as much as possible,” Wilkerson says. “The majority of our clients are young. Our strategy is to show that we are here for more than today’s money. We want to open doors for people for the next 30 years.”