Challenger banks, such as Monzo, N26 and Starling, have steadily grown in number and popularity, disrupting the traditional banking system with data-driven features and a mobile-first strategy that suits today’s consumers. More recently, these companies are stretching beyond accepting deposits, offering a wider range of products and services, such as loans, and many are well on their way to becoming fully-fledged banks in the West.
One region in particular which has lagged behind with regards to consumer lending is the continent of Africa. The two Nigerian brothers are looking to challenge this head-on—Ngozi and Chijioke Dozie, founders of Carbon, formerly known as Paylater.
The Dozie brothers spent their formative years in Nigeria, moving at the age of 11 to attend boarding school in the U.K. Although they have always been close, their interests differed greatly. After leaving school, Chijoke went on to study Economics at the University of Reading, whilst Ngozie studied Physics at Imperial College London, followed by a Masters in Computation at Oxford University.
After graduation, their career paths converged with both brothers pursuing careers in finance; Ngozi working for Arthur Anderson in the Risk department, whilst Chijioke focused on Emerging Markets Investing, namely in Africa for Zephyr Management and International Finance Corporation (IFC), the private sector arm of the World Bank. The two brothers then went on to pursue MBAs; Ngozie at Wharton and Chijioke at Harvard.
At the time that Chijioke was finishing his MBA at Harvard, Ngozi had been building a strong network during his time working in the investment banking division of JP Morgan. The brothers now wanted to start something back in their native country of Nigeria, having acquired enough experience in their respective fields and fuelled by a passion to better the continent of Africa.
Kaizen Venture Partners
Traditional private equity began making its way into Africa in the late 00s, although investments tended to be heavily concentrated in safe, large companies, given the relative volatility present in the region. The Dozie brothers hoped to start a fund focused on distressed companies and businesses that showed the potential to disrupt traditional industries. The fund was named Kaizen Venture Partners and fundraising began soon after inception.
Raising capital from traditional sources proved to be relatively difficult. Whilst the Dozie brothers were able to secure investment from the IFC, Chijioke’s former employer, most investors preferred safer bets which they could obtain from the traditional private equity sector. Thus, their first investments eventually came from family, friends and their extended network. They built their credibility in the market due to the high quality of the smaller deals they executed early on. They were able to discover investment opportunities that typically went under the radar and could yield high returns from these hidden treasures.
This was of great interest to their co-investors. An example of this was a coffee business they found in Rwanda—the business being in an industry most investors understood well and the revenue generated in dollars, with significant scope to scale in Africa. However, given the growth nature of these companies and the unreliable management of the businesses in the region, the brothers often embedded themselves in many of the portfolio companies, taking on the role of CEO. This experience of operating as both operator and investor set the brothers up for their next company, Carbon, formerly known as Paylater.
After running several of the portfolio businesses for a number of years, the Dozie brothers noticed a gap in the market—a distinct lack of basic level services offered by traditional banks in Nigeria. Due to an archaic credit reporting infrastructure, commercial banks were hesitant to offer consumer loans, and high government bond interest rates made it unlikely to change. The brothers believed they could leverage the types of technology and data science used by fin-tech companies around the world to collect data on the African markets, and mine that data to invent a way to perform credit checks on customers.
The first iteration of the company was called Paylater. Given their respective backgrounds, it was natural that Chijoke would take the business lead, whilst Ngozi spearheaded the technical side. They went about the business of collecting the data and building a mobile-first system that could qualify or disqualify customers for a loan, based on the information derived from their spending history, income level and other criteria.
Today, Carbon lends to thousands of consumers and SMEs, with loans ranging between $3 and $2600 for consumers, and up to $50k for SMEs. Their consumer base covers a range of needs, from individuals looking to make a purchase for their home all the way through to SME market stall vendors seeking working capital.
The Dozie brothers have big ambitions for Carbon to not only build their lending capabilities but offer consumers across the continent access to high quality and reliable banking services, which are simply taken for granted in other parts of the world. They are establishing Carbon to be the very best in class, irrespective of geography, which was further demonstrated by the company being one of a few private companies in Africa to voluntarily release their financial reports.
A look at their financial reports shows that their return on spend (compared to many of the challenger banks you see in more developed countries) is fantastic, proving there is a wealth of potential to build modern businesses in Africa if executed well and by the right people. Carbon’s early success has led the Dozie brothers to millions in funding, in order to expand the bank across Africa
Despite their success in an extremely tough market, the Dozie brothers have a humble demeanor, understanding they have barely scratched the surface of what they are trying to do and that there is much work ahead. They speak about the upcoming expansion into Kenya and, having worked on the continent myself, I know first hand how culturally different individual African countries can be, even though they are viewed as similar from those outside of Africa.
They were asked how they plan to tackle this and Chijioke replies: “We will be taking the same approach we took with Kaizen, going into the market to set things up ourselves and get our hands dirty before handing things over” which, in a continent like Africa, will inevitably the right way to uncover the very best of investment opportunities.