In Africa’s dynamic international trade landscape, one pervasive challenge looms large: Just 30% of transaction volume finds financial intermediaries in banks. This glaring funding gap disproportionately affects small and medium-sized enterprises (SMEs), as their larger counterparts absorb the lion’s share of the limited capital available.
The opportunity to reshape African trade becomes apparent when one considers the annual value of international trade volumes — a a staggering $1.2 trillion. More importantly, this untapped market highlights the need for startups that can take advantage. One of them is FrontEdgea Lagos-based fintech that recently raised $10 million in debt and equity (the former contributing over 70%) to enable the growth of African cross-border trade.
Founded in 2021 by Moni Alli, FrontEdge provides SME exporters and importers with the working capital and software tools needed to facilitate their cross-border and international transactions. For the past decade, the former McKinsey consultant has been brainstorming solutions to close the SME finance gap in Africa, building on a career focused on digital transformations for tier-one banks, particularly in Nigeria, South Africa and Morocco. FrontEdge is the culmination of his experience, the founder, who also worked in private equity at Development Partners International (DPI), tells TechCrunch in an interview.
“I spent a lot of time advising banks on financing SMEs, but I think the result I saw was that the balance sheet was heavily allocated to large companies. The financing process in banks is outdated. you have collateral-based lending, which means underwriting an SME can be considered unprofitable,” said Alli, who founded the company after completing his MBA at Harvard Business School.
“So it makes sense to digitize these processes and adapt them to SMEs, and this is the impetus I tried to advise before this led to FrontEdge. Our focus was specifically on African exporting SMEs. In this space of cross-border trade, we saw a huge gap in terms of funding and an opportunity to take on trade between countries effectively.”
The challenge identified by FrontEdge can be seen in the pre-financing model of, for example, agricultural traders. These traders advance capital to small farmers, overseeing the entire process from storage to transportation, which spans 60 days. After that, there is an additional transit period of 40 to 60 days, depending on the jurisdiction, before payment is made when the goods reach their destination. This results in a significant cash commitment over a 120 to 180 day cycle for exporters.
Unlike banks, FrontEdge provides seed capital to these exporters on the basis of transaction-based underwriting with no demand for collateral. However, Alli said the timing of her intervention varies depending on the risk she is willing to take. According to him, the startup usually operates when the goods are on a real ship or, at times, in the warehouse, with an average payment set between 60-90 days, allowing the fintech to finance the working capital gap, thus accelerating requirements and allowing for more transactions.
While FrontEdge originally developed a lending platform, it has evolved to become more powerful. It is linked to different databases to provide information on the dynamics of cross-border transactions between buyers and sellers and to undertake buyers’ offshore credits. After completing several transactions last year, the startup noticed that these entities were receiving dollar flows and recognized an opportunity to address challenges related to capital controls and high fees within the banking system. As a result, the fintech has extended support by making it easier to set up offshore accounts abroad, allowing the conversion of dollar earnings into naira, the local currency of many of these exporters.
Next, FrontEdge, which lists JP Morgan and Providus 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 merchants. Meanwhile, it provides software tools, including logistics management, cargo insurance and document management, to exporters to complement its financial offerings. The company’s neighboring competitors in Africa include freight carriers such as Jetstream and Send. those with similar business models, such as Mundi and Marco Financial, serve external markets such as Latin America.
“It’s a volume game and we’re basically trying to do as many trades as you can, given how tight the margins are. And so what you’re seeing in Europe and other jurisdictions is like these merchants are being given that financial support, which means they can give longer payment terms to their offshore buyers and be more competitive,” the CEO said.
“And so we equip the African exporter with the financing and tools they need to compete with the South American, European or US exporter. For these big buyers, the only thing that matters is the quality of the goods and the price. And so we can give them the financing where they can give the right terms and then have a level playing field with many of these buyers globally.”
FrontEdge claims its SME exporter customers — up 20% month-on-month since launch — have they managed to triple their sales on the platform. The company’s income comes from the spread of the transactions it finances. Alli would not disclose FrontEdge’s revenue growth, reiterating that the startup’s emphasis is on avoiding losses and demonstrating successful payouts. So far, FrontEdge claims to log zero default percentage after execution 50 contracts, each containing multiple trades and invoices.
Looking ahead, FrontEdge plans to use its capital provided by the lead investor TLG Capital along with other backers including digital freight forwarder Flexport, hire more talent, scale its financing product in Nigeria, Ghana, Cote d’Ivoire and Kenya and launch additional products as it aims to diversify revenue streams beyond financing. “TLG is proud to support FrontEdge in its mission to help African SMEs prosper by acting as a critical conduit to provide access to capital for Africa’s exporters and economic empowerment. FrontEdge is strategically positioned to address an important problem that needs to be solved for African traders to effectively participate in global trade, and we believe the leadership will implement the vision,” said Johnnie Puxley, investment professional at TLG Capital.
