The vibrant African international commerce scene has a significant challenge: banks only finance 30% of trade volumes. This funding gap disproportionately affects small and medium-sized organizations (SMEs), while more prominent firms take up much of the available cash.
African trade may be transformed when considering the $1.2 trillion yearly value of worldwide commerce. More critically, this unexplored market needs entrepreneurs who can capitalize. FrontEdge, a Lagos-based fintech, obtained $10 million in debt and equity early funding (with the former providing over 70%) to boost African cross-border trade.
Moni Alli founded FrontEdge in 2021 to supply SME exporters and importers with operating cash and technological solutions for international operations. The former McKinsey consultant, who worked on digital transformations for tier-one banks in Nigeria, South Africa, and Morocco, proposed ways to reduce the SME funding gap in Africa for a decade. The creator, who worked in private equity at Development Partners International (DPI), tells TechCrunch that FrontEdge is the pinnacle of his expertise.
I advised banks on SME lending but realized that giant corporations dominated balance sheets. Alli, who launched the firm after earning his MBA from Harvard Business School, said banks’ collateral-based lending makes insuring an SME unprofitable.
So it makes sense to automate these procedures and customize them to SMEs, which I advised before FrontEdge. Our target market was African SME exporters. We recognized a significant funding deficit in cross-border trade and a potential to guarantee transactions across countries.”
The pre-funding approach of agri-commodity dealers illustrates FrontEdge’s issue. These dealers support smallholder farmers and manage the 60-day warehousing-to-transportation process. After this, items are transited for 40–60 days, depending on jurisdiction, before payment is made. This causes exporters to hold up funds for 120–180 days.
Unlike banks, these exporters receive upfront cash from FrontEdge without collateral through transaction-based underwriting. Alli stated that its intervention time depends on risk tolerance. He said fintech typically engages when goods are on a vessel or warehouse, with average payment terms of 60–90 days, to fund the working capital gap, accelerate receivables, and allow exporters to do more transactions.
FrontEdge started as a lending-first platform but has grown. It analyzes buyer-seller cross-border trading trends and underwrites buyer offshore creditworthiness by connecting to many databases. After many trades last year, the business saw dollar movements and an opportunity to remove capital constraints and hefty banking fees. Thus, fintech helped set up offshore accounts to convert dollar earnings into naira, the native currency of many exporters.
On its website, FrontEdge identifies JP Morgan and Providus Bank as partners and functions as a vertical bank for African traders, offering financing, cross-border transfers, and offshore accounts. It offers exporters logistical management, shipping insurance, and document management software to supplement its financial services. Jetstream, Send, Mundi, and Marco Financial, which operate similarly, compete with the corporation throughout Africa and Latin America.
Given the tight margins, we aim to conduct as many deals as possible via volume. The CEO said that traders are provided financial support in Europe and other countries, allowing them to offer longer payment terms to offshore purchasers and be more competitive.
We provide African exporters with the cash and resources to compete with South American, European, and U.S. exporters. For major purchasers, quality and pricing are everything. We can give them money so they can offer the correct terms and compete with numerous worldwide buyers.”
FrontEdge boasts that SME exporters, which have increased 20% month-on-month since their debut, have tripled their revenues. The firm makes money from a variety of transactions. Alli says FrontEdge prioritizes minimizing losses and repaying. Therefore, she doesn’t report revenue growth. FrontEdge claims a 0% default rate after 50 contracts with various transactions and invoicing.
FrontEdge plans to use its capital from lead investor TLG Capital and other backers, including digital freight forwarder Flexport, to hire more talent, scale its financing product across Nigeria, Ghana, Ivory Coast, and Kenya, and launch new products to diversify its revenue streams beyond financing. TLG is happy to assist FrontEdge in its objective to help African SMEs succeed by providing finance and financial empowerment to African exporters. Johnnie Puxley, an investment specialist at TLG Capital, said FrontEdge is ideally situated to solve a critical challenge for African traders to engage in global commerce effectively. We believe the leadership will execute on the strategy.