News was rife recently that Digital-only neobank, Kuda Micro-finance bank has for the last two years been incurring losses.
According to Kuda’s financial report, the company operating under the Nigerian microfinance bank licence, at the end of the 2021 financial year recorded a ₦6,092,554,866 ($14,214,681) loss, a 602 percent rise from the ₦868,062,000 ($2,025,295) loss it made in 2020.
The financial report of the company showed that it revenue jacked up by 4,135 percent from ₦72,649,000 in 2020 to ₦3,207,177,570 in 2021, but after the expenses of the company were deducted, the company closed the year at a net loss. High credit loss/impairment charge and operating expenses were among the factors that contributed to the loss.
The hardest stroke was reported to have been delivered by bad loans
According to the report, “the nonperforming loan (NPL) recorded by the firm is too high for the comfort calculated at 69%”, and this was what made Kuda have a high impairment rate, which was valued at ₦2,258,698,669.
What does it mean if loans are impaired?
Loans are considered to be impaired if the creditor is unable to collect all principal payments and interest accrued due according to the contractual terms of the loan agreement.
In the report analysis, the impairment eroded about 96 percent of the interest income made from the loan offer, an indication that Kuda had extended a lot of bad credit through its overdraft product and that ate into its balance sheet.
Just few days before it announced its 25 million Series A round March last year, Kuda had begun the piloting of Bottom of Form its overdraft product with over 2,500 users who “have been using their Kuda accounts actively”, with the company claiming that it had hit 50,000 users weekly by June.
In a statement, Kuda once announced that it had disbursed $20 million worth of credit to over 200,000 qualified users, with a 30-day repayment period at the end of the second quarter of 2021.
Kuda’s co-founder and CEO, Babs Ogundeyi had once posited that the microfinance bank has seen “minimal” default because of its approach. “We use all the data we have for a customer and allocate the overdraft proportion based on the customer’s activities, aiming for it not to be a burden,” Ogundeyi said in that statement.
A deep analysis of the financial report of Kuda stated that “the firm’s risk appetite, criteria and strategy relating to retail and business loan calls for immediate restructuring.”
More expenses from increasing staff strength
The neobank due to its expansion agenda had hired more employees and this culminated in its personnel expenses increasing by about 500 percent from ₦215,437,000 in 2020 to ₦1,285,381,188 . This is fallout of increased employment of key management staff at high cost, salary review, and promotion of current staff.
The staff count increase also came with depreciation and amortization, with laptop, furniture et al saw it to a serious jump by 246% to ₦64,326,473, from ₦18,590,000. The operating expenses (OPEX) of Kuda collectively shoot up 652% to ₦7,033,275,412 in 2021 from ₦935,560,000 in 2020. “The income of the firm does not justify this spend in the short time,” said the statement.
Branding and Marketing expenses
Kuda had in recent times committed a large chunk of its funds on branding and marketing, with the microfinance bank at the end of 2021 spending over $1 million on marketing alone. In the financial report, the marketing spend was stated as a major reason its OPEX was on the high side.
At the launch of Kuda, bank transfers on its app were free on the first 100 transfers and 25 free monthly transfers. It was tagged ‘The Bank of the Free’ as it also has no card maintenance. The idea of it having a ‘free transfer’ policy was criticized by many industry commentators despite its good customer ratings.
The financial report showed that the Nigerian neobank got more income from value-added services like airtime purchases than its core banking services. But the free transfer policy later changed after Kuda announced it would be only following a Central Bank directive, to begin charging fees on transfers and deposits.
Kuda became more valuable than some Nigerian banks after it raised about $55 million in series B funding August last years, making the company now valued at $55 million.
In its Series B announcement, the company stated that it now boasts of about 1.5 million users, even as it harped on its customer lifetime value add, it is looking like Kuda will be playing a long game of growing its users, and this may culminate in it throwing a bit of caution to the wind in giving out soft loans, without considering the lending nature of Nigerians.
It is hoped that the ‘Bank of the Free’ bounces back from this setback.