Two years ago CEO Jean-Luc Konan, the former investment banker, created the Cofina Group, a panafrican institution specialized in mesofinance. Sometimes called the ‘missing middle,’ mesofinance refers to financing the “missing link” and is at the crossroads of traditional finance, which is guaranteed by banks, and microfinance, handled by specific institutions.
Leaders League. Jean-Luc Konan, in a couple of words can you briefly present and describe the activities of the Cofina Group.
Jean-Luc Konan. Today, I am a mesofinancier and a former banker. I started my career in a classical manner in a bank where I worked for different international institutions such as Citibank, Barclays, Ecobank and UBA before setting off on the Cofina adventure.
We have three missions at Cofina. First, we collect deposits and distribute credit. Furthermore, because entrepreneurs don’t simply need liquidity but also the means to survive in this ecosystem, we also offer financial proximity services (money transfer, bill payments etc.). And finally, we incubate through Cofina Startup house, which is the first integrated incubator in our field.
Leaders League. You describe yourself as a mesofinance expert, which is at the heart of Cofina Group’s positioning. Why did you choose this specialization?
J.-L. K. I noticed that as a banker, SMEs represent approximately 80% of the companies created on our continent today, but only have access to less than 6% of the financing. They are victims of financial exclusion stuck in the middle with, on one hand, major companies financed by banks and the market, and on the other, nanofinance supported in Africa by close family, parents, etc. It’s a situation that can lead to great societal woes especially considering that our continent’s population growth rate is approximately 3.5% a year. We can clearly see that formal employment won’t be able to absorb this growing population that will enter the job market. We need to create auto-entrepreneurs. Part of the solution to this problem is mesofinance which correlates with the very structures of our African societies.
Leaders League. Does your mission have societal considerations as well?
J.-L. K. Mesofinance is a committed but also profitable take because it is a sector involving wealth creators contrary to common belief.
Leaders League. The shortfall of SME financing in Africa is estimated at around 140 billion dollars. Why are institutional banks being overcautious regarding entrepreneurs?
J.-L. K. The lack of SME financing is due to one thing: financial analysis in our countries is based on empirical techniques. In a traditional commercial bank, the first thing we ask a borrower for is their last three certified financial statements. The majority of African SMEs, that have simple accounting and don’t have the necessary documents at their disposal are de facto excluded from the system. There is hence an inadequacy between supply and demand. On one side you have an excess of capital (because African banks have a lot of liquidity) and on the other, entrepreneur needs but no link between the two. Today, African banks seek the same clients, notably major international corporations without really looking at SMEs that work on a different approach. Certain actors are starting to understand and stratify their different activities (traditional banking, meso and micro finance). Instead of teaching a client how to use a product, why not try to build a product that they need and let them take it themselves? The originality of the mesofinance system is that it demands a paradigm shift in the way clients are approached.
Leaders League: Can we agree that you have found a niche in the African financial market?
J.-L. K. Yes and no, because the idea that we will make a niche for ourselves suggests a small segment on a specific problem. Here, we have a particular problem applied to a larger segment of the population. Here, we have a precise problem applied to a larger part of the population. The SME and micro-entreprises have for a long time been considered unfinancable because of the different risks that go with it, and the fact that it’s a sector which poses a double problematic: a clear understanding of the fundamentals of finance and knowledge of the immediate environment in which we cannot apply mesofinance. It’s an activity that is halfway between traditional finance andmass distribution. The first corresponds to a risk management problem and the second is a mastery of the proximity challenges. You might say it’s a sort of hybrid model that we have prepared, one that allows us, with the aid of a certain number of statistical tools, to handle SME risks.
Leaders League. Is Cofina’s strength having a good knowledge of the African environment?
J.-L. K. Yes, because Cofina is made up of 16 nationalities and is present in six countries. This is not only because we have we developed our activity in those countries where we have a presence, but also because we think about the countries where we’d like to import our wealth of knowledge. One of the main obstacles of development in Africa is our inability to think outside the box. What makes Cofina special is that it is surrounded by many associates who specialize in three main sectors: banks, microfinance and mass distribution. Our strength comes from the combination of these three elements because bankers know how to manage risks, microfinancers are excellent debt collectors and big retailers understand market entry.
I’d also like to add that I am above all an entrepreneur and it's for this reason that I am able to finance other entrepreneurs’ projects. Some time ago, I was a banker and I did not understand entrepreneurs. Today the latter make up 80% of the top management of our group because we like to think differently and that’s our strength. If we had stayed with a classical approach, we wouldn’t have accomplished the results that are ours today because we wouldn’t have aimed at this target.
Leaders League. What are the specificities and specific needs of borrowers in this sector?
J.-L. K. We gather them under the category of SMEs but they correspond to another problematic. The first two categories are mainly seeking working capital. Typically, it involves entrepreneurs that have a know-how of how orders are paid, ie with several months delay. Those are sensible to short, swift and with not too many documented transactions. That’s the first generation. The second generation are medium-sized companies that don’t yet have a track record but are seeking medium term investments and financing in order to transform short-term capital into investments. Finally, the third generation is the one that seeks to go from mid-sized to big companies to obtain more competitive financing and that is long term. We must not mistake momentum, each step corresponds to a specific problematic.
Leaders League. In terms of financial needs, how do you describe SMEs?
J.-L. K. It’s a difficult question as it all depends on the size of the economy. In the Ivory Coast, companies with turnover of more than five billion CFA francs are considered big, whereas in Nigeria, those with a turnover of under 30 billion CFA francs are regarded as a SME. Hence, it varies. But, for Cofina, an SME is a company that has a turnover under 2 million CFA francs and whose main activity is based oncredit lower that 200 million CFA francs (300,000 euros). When financing needs are lower than 300,000 euros, we consider this as a SME.
Leaders League. What is the standard profile of entrepreneurs who seek credit from Cofina?
J.-L. K. It’s the most difficult identikit to draw because our markets differ from country to country. We can, however, observe a general trend: three fourths of men and women between the ages of 30 and 45 have never formally occupied a position in a company. The remaining one-fourth represents the educated and trained populace who have decided to set up their own business.
Leaders League. Upon your arrival at UBA, you put in place the “plan 120” that has allowed you to straighten subsidiaries. In the past, you were a part of a team that started the first consumer credit in Africa, in West Africa specifically, and now you’d like to tackle the “missing link” Would you say challenges are your drug?
J.-L. K. I love challenges, or at least I love to find solutions when challenges present themselves. Maybe it’s because my stars sign is Aries. Aries’ love to take charge, to go fast In any case, I don’t think that there is an activity out there that is without challenges.