Toyota bets on start-up Tugende's small loans to boost Africa business

The trading arm of the Toyota Group has invested $4 million in Ugandan start-up Tugende, saying it hopes the firm's loans to small, independent businesses will also help customers buy the carmaker's vehicles.

Launched in 2012 in Uganda, Tugende began by offering motorcycle loans to riders and has since expanded to offer loans for everything from fishing boats and minibus taxis to sewing machines and refrigerators for small shops. It opened a branch in Kenya last November.

The investment in Tugende came from Mobility 54, the investment fund for Toyota Tshusho Corporation as part of $6.3 million Tugende raised in its Series A investment round this month.
"We see a huge potential for Tugende business in the taxi market," Mobility 54's chief executive officer Takeshi Watanabe told Reuters, noting that many minibus taxis were Toyotas.

Watanabe said the group aimed to invest $45 million in transportation and asset-financing start-ups like Tugende in Africa next year.

Tugende's "mortgages" - the bikers wouldn't get a title to the bike until the final payment was made - target people like Mark Yaweh.

The 25-year-old motorcycle taxi driver had scraped by riding someone else's bike for three years, but put a downpayment on a new one and hoped to own his own after 18 months.

"I'm excited, I yearned for this," said Yaweh, wearing a mask and a pink reflector jacket.
Banks are often reluctant to lend money to small or informal businesses in Africa because of the high rate of default.

The financing gap for micro, small and medium enterprises in sub-Saharan Africa is estimated at $331 billion, according to a 2017 report by the International Finance Corporation, the private investment arm of the World Bank.

Development organizations say the kind of microlending Tugende is providing is key to closing that gap.

With an asset base of $30 million, the start-up has handed out about 35,000 bike "mortgages" so far in Uganda, which Tugende estimates has about 800,000 riders.
More than three-quarters of the borrowers pay off the two-year loans off early using mobile money service or other digital platforms, said Michael Wilkerson, Tugende's chief executive.

Wilkerson said Tugende was seeking further $40 million in debt and equity to expand its existing motorcycle mortgages, grow its new motor vehicle financing product and enter new markets in the region.