How Nigeria’s MFB, Kuda Suffered a 6 Billion Yen Loss in 2021


Recently, news broke that the new digital-only bank, Kuda Microfinance Bank, has been in losses over the past two years.

According to Kuda’s financial report, the company operating under the Nigerian Microfinance Bank license, at the end of fiscal year 2021 recorded a loss of 6,092,554,866 ($14,214,681), an increase of 602% over the loss of 868,062 $2,000 ($2,025,295) that she made in 2020.

The company’s financial report showed that its revenue rose 4,135 percent from 72,649,000 yen in 2020 to 3,207,177,570 yen in 2021, but after deducting corporate expenses, the company closed the year with a net loss. Higher credit/impairment losses and operating expenses were among the factors that contributed to the loss.

The hardest stroke was reported by bad loans

According to the report, “the non-performing loan booked by the company is too high for the calculated comfort of 69%,” which is why Kuda has a high impairment rate of JPY 2,258,698,669.

What does it mean if loans default?

Loans are considered impaired if the creditor is unable to collect all the principal payments and interest due in accordance with the contractual terms of the loan agreement.

In the report’s analysis, the impairment eroded about 96 percent of the interest income generated by the loan offer, an indication that Kuda had given too much bad credit through an overdraft product that eroded its balance sheet.

A few days before it announced 25 million first-round runs in March of last year, Kuda began trialling its Bottom of Form overdraft product with more than 2,500 users who “were actively using their Kuda accounts,” with the company claiming it owns It reached 50,000 users per week by June.

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In a statement, Kuda once announced that it has disbursed $20 million in credit to more than 200,000 eligible users, with a 30-day repayment period at the end of the second quarter of 2021.

Babs Ogundi, Co-Founder and CEO of Kuda, once posited that the microfinance bank has experienced “minimal” defaults due to its approach. “We use all the data we have for the client and allocate the overdraft percentage based on the client’s activities, with the aim that it is not a burden,” Ogundi said in this statement.

An in-depth analysis of Kuda’s financial report stated that “the company’s risk appetite, benchmarks and strategy regarding retail and business loans require immediate restructuring.”

More expenses from increasing the number of employees

The new bank, due to its expansion agenda, has hired more staff, culminating in an increase in staff expenses by about 500 percent from 215,437,000 yen in 2020 to 1,285,381,188 yen. This is the repercussions of increasing the hiring of key management personnel at a higher cost, reviewing salaries, and promoting existing employees.

The staff increase also came with depreciation and amortization, with laptops, furniture and others seeing a serious jump of 246% to 6,432,643 yen, from 18,590,000 yen. Collectively, Kuda’s operating expenses (OPEX) increased 652% to 7,033,275,412 yen in 2021 from 935,560,000 yen in 2020. “The company’s income does not justify this expenditure in the short time,” the statement read.

Branding and Marketing Expenses

Recently, Kuda devoted a significant part of its money to branding and marketing, as at the end of 2021 the microfinance bank spent more than a million dollars on marketing alone. In the financial report, marketing spending is mentioned as the main reason behind the higher operating expenses.

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At the launch of Kuda, bank transfers on its app were free for the first 100 transfers and 25 monthly transfers were free. It has been marked “The Bank of the Free” because it also does not have card maintenance. Several commentators in the field have criticized the idea of ​​a “free transfer” policy despite the good customer reviews.

The financial report showed that the Nigerian new bank earned more income from value-added services such as broadcast purchases than from its core banking services. But the free transfer policy later changed after Kuda announced that it would only follow central bank directives, to start charging fees for transfers and deposits.

Kuda has become more valuable than some Nigerian banks after it raised around $55 million in Series B funding in August last year, which now puts the company at a value of $55 million.

In its Series B announcement, the company stated that it now boasts about 1.5 million users, although it plays with the added value of the lifetime of its customers, it looks like Kuda will play a long game to grow its users, and that may culminate in that, casting some caution in granting soft loans, Without considering the nature of lending to Nigerians.

It is hoped that the “Bank of the Liberals” will recover from this setback.

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