UK and Uganda-based Balloon Ventures has since 2018 been plugging a lending gap for East African businesses that need $20,000 on average in working and growth capital. Those checks are too large for microfinance and too small for commercial banks. Balloon’s team now has underwriting at that size down to a science.
“Our model is copy-and-paste. We focus on ‘boring’ businesses – schools, clinics, farms, shops, distributors – where operations are highly replicable,” explained Balloon Ventures’ Josh Bicknell. “Our goal is thousands of loans a year.”
Balloon Ventures has a loan book of $15 million. An investment from impact-first investor AtoZ Impact will support the lender in growing its portfolio to $25 million over the next six months.
“Few organizations have demonstrated the scale and potential that Balloon has,” wrote A to Z Impact’s Alex Evangelides. “They are able to credibly underwrite more than 50 loans a month, serving an extremely under-capitalized segment that builds the real economy of rural Uganda and Kenya,” while recycling capital sustainably.
Bicknell told ImpactAlpha that operations in Uganda, its first and largest market, are now profitable.
Impact incentives
In addition to being a rare “missing middle” small business lender, Balloon is unique for its impact angle: good jobs. Many African small businesses employ only a few workers; other labor needs are met through informal agreements.
“Every small business that borrows from us agrees to move all employees to legally enforceable contracts of employment, as a condition of accessing the full loan amount,” shared Bicknell. “This locks in both impact and business performance, as contracted staff are more productive and motivated.”
Alpha Nursery and Primary School in Uganda secured a loan from Balloon to complete construction of its girls’ dormitory and equipment purchases. It has since doubled its full-time staff and has the financial flexibility to provide holiday pay and fee discounts to staff children.
Agriprocessing business Tinomusoline Investments secured a loan to expand its stock and acquire new machinery. That in turn fueled growth to help the business add three full-time workers and formally contract more part-time workers.
Independent grocer Mama Lina and Mama Arshavin secured growth capital from Balloon, which allowed the store to hire 17 workers, mostly young women.
Balloon publishes its impact outcomes from its Uganda portfolio in real time.
Data driven
Central to Balloon’s model is being a hands-on lender. The firm provides a laptop, new business management systems and hours of business support to each borrower.
By having access to large volumes of business cash flow data, it has been able to establish sector-specific benchmarks and credit scoring, and disburse loans in as little as five days, compared to two months from most banks.
Three in five of its customers are securing a loan for the first time.
The company is using its lending experience to map a growth strategy in Kenya. In July, it hired Jovitus Rutakinikwa, previously with SME Impact Fund Tanzania, to lead its market strategy for Tanzania.
Blended finance
In addition to AtoZ, Balloon Ventures has secured debt capital for its lending operations from the Dutch Good Growth Fund, family office Ceniarth, and DF Impact Capital. Those investors are buffered by first-loss capital from Argidius Foundation, Happel Foundation and the Challenge Fund for Youth Employment.
