Valuable insights into credit financing to the informal sector as told by a man who has leased out 30,000 motorcycles, boat engines, cars, tractors and fridges to people previously thought to be too poor to afford them While interning as a journalist in Uganda, between 2006 and 2009, Michael Wilkerson and his housemate, Matt Brown started an experiment on leasing motorcycles, commonly known as boda-bodas. The duo first bought 3 motorcycles in November 2009 and handed them over to their favourite riders, who also happened to be their transporters, most of the time. In June 2010, Michael interested media entrepreneur and journalist, Andrew Mwenda in the idea. They had met first at Daily Monitor where Mwenda worked and thereafter at The Independent, a newly established media house by Mwenda. With encouragement from the veteran journalist, cum businessman, by October 2010, the idea was formalised and registered as ‘Own your own Boda Limited’. Subsequently, in 2012, the name got changed to Tugende Limited. Tugende is a Luganda (Bantu language) word, meaning, “let's go”. By this time, the business was experienced turbo-charged growth. Necessitating more fundraising to feed the demand and the expansion needs. Fast forward, today Tugende is a big business with over 33 branches (23 in Uganda and 10 in Kenya) supported by 800+ full-time staff. Tugende has served more than 70,000 clients who have fully owned more than 30,000 income-generating assets- motorcycles, fridges for retail shops, boat engines, matatus, trucks, power tools, 3-wheelers and more. The Tugende ecosystem today, touches the livelihoods of over 275,000 people! But what has Michael Wilkerson learnt from all this and where is he headed He shares insights with CEO East Africa’s Muhereza Kyamutetera.

From the look of things- it appears the pandemic set the business back a couple of years- how would you describe the path to recovery? 

It is fair to say that the pandemic has been an unprecedented challenge for many businesses and especially for Tugende because of the number of customers in the transport and the informal sector as a whole which were hard hit by lockdowns and now inflation.

Before going into more detail it’s useful to take a step back and review the journey as a whole.

Tugende is a for-profit social enterprise providing MSMEs in the informal and semi-formal economy with access to financial services–a huge need across Africa where the demand for small business credit is USD400 billion but less than 20% of that is available.

Tugende’s core product is credit for experienced micro-entrepreneurs to purchase revenue-generating assets while building a digital credit profile. In addition, Tugende acts as a gateway to additional financial and ancillary services including insurance, training and regulatory items like PSVs and driving permits. The company started in 2012 with financing for motorcycle taxi (“Boda Boda”) drivers to own instead of rent and averaged >100% annual portfolio growth for its first seven years of operation. Over the years the financing package was enhanced to include life and medical insurance, driving permits, high-quality safety equipment and more. Starting in 2017 Tugende also diversified beyond motorcycles and now proudly supports entrepreneurs to own fridges for retail shops, boat engines, matatus, trucks, power tools, 3-wheelers and more.

During the Covid-19 pandemic Tugende lived up to its social and community values by providing:

• An unconditional grant of UGX 25,000, to each of its 23,000+ clients at the time. This also served as a systems test for transferring cash from Tugende to clients, in anticipation of launching the cash loan product in 2021.
• Waivers of fines for late payment to all clients and extended a four-month moratorium.
• Tugende retained and supported all staff through the 2020 and 2021 lockdowns

The above measures required even more investment at a time when revenue was down but at the same time, the whole team kept working in the background including on further developing our in-house software technology and industry-leading digital credit profiles which unlock new opportunities for successful clients.

These investments in human capital, technology and the community are now a great asset that reinforces Tugende’s recovery and ability to scale the business for the next decade and beyond. Tugende is now starting to see stronger post-pandemic growth, though of course Ebola and haphazard police crackdowns on transportation have created some bumps in the past month.

With credit as its core revenue stream, Tugende is also acting as a platform connecting MSMEs to professional services, government services and other value-added resources. Over time, Tugende has become a multi-sector lender with clients in the fisheries, agriculture, mobility, retail and manufacturing sectors. Tugende is raising significant capital in 2022 to scale its platform, achieve more growth and be the leading financial services provider to MSMEs in Africa’s informal economy.

What lessons has the business learnt from the pandemic that are helping you to future-proof the business against any such shocks?

First, we need to look at how we survived through the pandemic itself. Tugende was possibly the first if not the only company in our category that restructured clients’ loans as soon as the first lockdown was announced even before the government appealed to the financial services sector lenders to restructure. Secondly, Tugende also extended a helping hand sending cash to all active clients at the time in a cash handout to over 23, 000 clients.

Thirdly, Tugende ensured that every single job throughout the pandemic was preserved ensuring that all employees and their families were guaranteed a livelihood through the tough times. This of course had a deep impact on our cash reserves and profitability which is lingering through the slow post-lockdown recovery.

We did all this while maintaining our obligations to external lenders and the government, despite the massive challenges to earnings and cashflow.

A major lesson we learnt though is that long-term sustainability and a strong business model are key. Most of our customers bounced back to strong performance after each lockdown, showing that their underlying entrepreneurship and businesses are strong despite the pain of the lockdowns. That said, everyone has struggled with less cash moving in the economy and many customers are balancing fuel prices, school fees, and now increased demands from the government at a time when cash is low. Fortunately, we’ve had thousands of clients fully complete their loans in 2021 and 2022, meaning they have full ownership and extra profits to invest in their families and communities in this critical time.

Another lesson was that focusing on our long-term values and value proposition to clients helps when making hard decisions. Tugende’s mission is to help people help themselves and our efforts through Covid and ongoing today are aligned with that. Ultimately this means protecting the business and platform at all costs so it can continue serving self-driven customers and helping people grow. Right now we are taking a hard look at all expenses to ensure we can serve more customers for many decades to come. Technology is enabling us to be more efficient and give our customers more options like checking their accounts and applying for upgrades in our app instead of coming to branches, which saves time and fuel.

Sometime back you expanded into motor-vehicle financing, how is that performing?

What unites all our customers is “they know what they want” in terms of moving themselves and their families to a higher level. We’ve seen great customers in special hire cars, matatus, and now medium and light duty trucks.

That said, what might surprise many people is the performance of boat engine clients, who are mostly using the engines for fishing and water transport and include multiple female boat owners. We are also excited to have started piloting tractors and other assets in the agricultural sector. Over 80% of our existing clients, including motorcycle riders, report having household income from agriculture so there is a natural fit.

Away from the financial performance, what impact has been created by Tugende thus far? What are some of the figures that capture this impact?

We have served more than 70,000 clients who have fully owned more than 30,000 income-generating assets. Our successful clients report creating an average of 2.5 new jobs per asset paid off and investing their profits in other businesses as well as better education, and healthcare for their families. Tugende has also helped tens of thousands of clients get their first driving permits, TIN numbers, and medical insurance. Tugende’s model stands out because the products offered are designed for impact first, not evaluated for possible impact later.

Another critical part of our impact is the access to finance not only for our primary clients but for their households and communities. Tugende takes more risk on new customers who are linked to a strong alumni client. For example, Ms Florence Nakalema of Nabweru is married to a two-time motorcycle owner and successfully applied for and used Tugende financing to extend a critical service delivering clean water to her community in Nabweru with a 10,000-litre water tank. Mr Saad Wamundu in Mbale has become a landlord and expanded his plot of land in Mbale City from the proceeds of his boda boda business. We see our impact through the sustenance of our staff at a time when companies were either cutting jobs or reducing pay.

Tugende’s innovation has improved the livelihoods of over 275,000 individuals across East Africa with over 97% of clients reporting improved quality of life, 66% ability to afford household needs and bills and a 37% improved ability to earn income. In their households, 90% reported the quality of meals increased while 85% reported increased spending on fees.

Tugende has developed a proprietary “T-Score” for real-time client credit scoring, rewards points, and referral bonuses, building on over 10 years of large cumulative data over and utilizing modern data science methods to improve its data analytics capabilities to including underwriting supported by predictive application scores and behavioural scores.

Tugende has consistently won global awards, investment and recognition for its social impact in improving the economic situation of self-employed entrepreneurs which include the Financial Inclusion Award at the 2022 African Banker Awards; Top 3 African Financial Inclusion startups by Mastercard Foundation; MIT’s Legatum Center for Entrepreneurship & Development” and Inclusive Fintech Awards 2021 by the Center for Financial Inclusion.

Over 11 years, the company has grown to 33 branches (23 in Uganda and 10 in Kenya) supported by 800+ full-time staff.

Tugende’s model is certainly a very unique one. What are some of the lessons you have learnt on financial inclusion that can be used to scale up across the board, by other players as well? And what can government do, in terms of a conducive operating environment for Tugende, and any other such players in this ecosystem?

Overall the key lessons learnt are the need to understand the customer and the market first, before venturing out; getting the price right and getting the right investors that are aligned with the values and mission of the company. Lastly, it is important to build a great team to execute the mission of the company.

There are a number of things and policy interventions that the government and or the other stakeholders in the wider ecosystem can do to create a conducive environment. 

One of the most welcome recent developments is the new rules for credit reference bureaus that allow players besides BOU-regulated financial institutions to access and contribute to the CRBs. Tugende has built its credit scoring and allows clients to use their Tugende profiles to get new opportunities but we are excited to also help them document their responsibility in a larger setting. This progress is emblematic of how government can play a catalytic role in promoting and supporting the growth of the private sector with good planning and a level playing field. 

According to national household surveys, 1 in 5 Ugandan households possess at least 1 motorcycle, which is conservatively 1,000,000 motorcycles across Uganda. Boda-bodas, to date, are the best ways to move produce from the farm, and inputs to the farm. They are the first call for medical transport in rural areas and create jobs for mechanics, parts dealers, insurers, fuel stations, and even government regulators funded by stamp duties, import duties, petrol excise taxes, VAT and many other types of taxes paid. In short, when working on regulation, the government needs to have a broader insight into the economic and social ecosystem that the “boda boda” serves and or is part of. 

Unfortunately, some government actions have economically damaging ripple effects due to a lack of planning. For example, the decisions to leave boda bodas locked down or on curfew until February 2022 or a competing registration/census exercises that turn into threats to unemploy hundreds of thousands with no alternative. Another challenge is conflating anyone on a motorcycle with criminals when focusing on access to guns would be a more fruitful way to reduce violent crime.

Tugende is always open to supporting the government on all initiatives to regulate and formalize the boda boda industry and informal business in general. As mentioned we help clients get driving permits and TIN numbers so are already helping formalize the economy and expand the tax base. We have successfully partnered with Uganda Police, KCCA, Ministry of Works and Transport and others on road safety, regulatory discussion and more and look forward to continuing to support wherever possible.

The government could do better to ensure there is a robust mechanism that engages stakeholders before any new policies or initiatives are introduced. As we saw with the Mubende Ebola lockdown, the decision to stop motorcycles completely with no planning crippled PLE exams because teachers and pupils had no alternative transport. Too often actions are announced first and stakeholders consulted later.

Increased small business financing remains a critical need and the government’s Covid recovery fund and new investments into e-mobility are promising steps. However many businesses never recovered from the shocks of the first Covid waves so continuing to focus on new mechanisms for job creation including empowering self-made entrepreneurs from the bottom up, not just incentives for big external investors will go a long way to keep fueling Uganda’s growth and badly needed youth employment.

My last word would be to invoke empathy, one of Tugende’s core values. Whether it is government vehicles with lead cars illegally bullying their way through traffic, car drivers creating 2 and 3 lanes on busy roads, or boda bodas riding on pedestrian pavements, everyone would be better off if we take some time to put themselves in other people’s shoes and be considerate. Everyone has a dream of how to improve their own life. At Tugende we want to help make those dreams a reality, especially for those who need someone to take that first chance.