Financing moves into cellular

A South African micro-lending company is expanding into Africa, by offering handset credit deals in a shift from its traditional lending offerings.

Mafori Finance launched its offering in Burundi, in March, and will soon offer the same concept in SA, after buying a small company, Ibuso, which already offers handsets and airtime on finance.

In SA, Mafori lends cash to people who are too high risk for the banking sector. It has a loan book of R105 million. It saw Africa as an attractive expansion opportunity, as it could export its intellectual property and systems to countries where financial systems are behind those of SA.

CEO Pakie Mphahlele says Mafori, based in Pretoria, is linking up with cellular operators. In Burundi, it has joined forces with Econet in a partnership that gives less credit-worthy people access to buy handsets and airtime on credit.

Mafori provides its financial backbone to Econet, and offers 12-month financing deals through Econet-branded outlets. It purchases entry-level handsets in SA and then sells them in Burundi on 12-month deals, making money monthly on the margin between the purchase price and the sale price. It also receives discounts on airtime from Econet, making profits on that margin.

There are three cellular networks servicing 250 000 cellular users in Burundi, which has a population of eight million. Mafori, which has a staff of 80, already has a client base of 52 000 in the country through its partnership. It aims to have over 60% of the market in the next year.

He says Mafori introduced its new offering to Africa first because it found it difficult, as a small company, to negotiate with large South African cellular operators. Instead, it bought Ibuso and will start developing this market as soon as its systems are upgraded.

After its launch into Burundi, Mafori wants to offer similar deals in Zimbabwe, Nigeria and Tanzania. It will enter the countries through partnerships that will allow it to finance mobile handsets and airtime.

Mphahlele says the company has also joined forces with Beryl Capital, in Zimbabwe. This deal allows Zimbabweans to call home without paying roaming charges through Cell C, in SA, and Econet, in Zimbabwe.

Mphahlele says most African countries' financial systems are immature, and at the same level SA's were in 1995.

ITWeb was unable to establish if there are other similar cellular financing offerings in Africa, but an analyst says this type of product could go mainstream and become the way of selling handsets in Africa.

Frost & Sullivan industry analyst Spiwe Chireka hailed the move as a “very welcome development”. She says cellular companies, especially in countries on code division multiple access (CDMA) wireless networks, have battled to sell subsidised handsets.

Chireka says this is because cellular companies had found consumers would buy discounted handsets, and then buy the opposition's airtime. This prevented the company from making back its money on the handset, as the profit is in airtime.

She says CDMA is the available network in 25 countries, including Democratic Republic of Congo, Nigeria, Sudan and Kenya.

Telkom's Nigerian unit, Multi-Links, plays in the CDMA space for mobile telephony, rather than in the GSM space, which is the technology used by MTN, in Nigeria. Handsets are required to have a certain specification and the marketing of the products are left to the vendors. Companies like Huawei produce handsets under the CDMA standard.