Nigerian microfinance bank and fintech startup Kuda has reportedly recorded a loss for the second year running.
The company which recorded a loss of 868 million Naira ($2 million) in 2020 has been reported by TechCabal to have seen a massive 602% increase in loss which rose to over 6 billion Naira ($14 million) by the end of the 2021 fiscal year.
The company however saw a 4,315% increase in revenue from ₦72,649,000 in 2020 to ₦3,207,177,570 in 2021. After the deduction of expenses, Kuda closed the year 2021 at a net loss with expenses relating to the bank’s overall operation said to have contributed the most to the loss.
According to TechCabal, bad loans are majorly responsible for the development with the financial report stating that “the nonperforming loan (NPL) recorded by the firm is too high for the comfort calculated at 69%”, and this led Kuda to a significantly high impairment rate valued at ₦2,258,698,669. In clearer terms, this means that there is a probability that the debtors will be unable to repay the principal and interests for the loans based on current information and events.
After analyzing a section of the report, it was discovered that the impairment might have eroded 96% of the interest income made from the loan offer. This means that the neobank extended a lot of bad credit through its overdraft product and that wreaked havoc to its balance sheet.
A few days before it announced its $25 million Series A round in March 2021, Kuda started testing its overdraft product with over 2,500 active users. The overdraft feature was received with mixed feelings by its users but the company came out and claimed that it had been a success as the product had hit 50,000 weeky users by June 2021.
In fact, the company once stated that it had disbursed $20 million worth of credit to over 200,000 qualified users with a 30-day repayment period. CEO of the company, Babs Ogundeyi followed this up by claiming that there was minimal default because of Kuda’s approach. However, in the recent report showing the company’s net loss, it was stated that “the firm’s risk appetite, criteria and strategy relating to retail and business loan calls for immediate restructuring.”
Aside the overdraft blow, Kuda also recorded losses as a result of personnel expenses which increased by 200% from ₦215,437,000 in 2020 to ₦1,285,381,188 in 2021. This was due to its increased employment of key management staff at a high cost, salary review, and promotion of current employees.
The bank also invested significantly in branding and marketing, which is clearly an aspect in which it is renowned for. Kuda spent more than $1 million on marketing by the first quarter of 2021 and according to the report, this also contributed to the high operating expenses.
Kuda raised $55 million in Series B in August 2021 and is now valued at $500 million, making it more valuable than some Nigerian banks. However, it is now in clarity that the said valuation is based on projections for the future which might be related to potential revenues that will be gained from its ‘1.5 million users’ in the future.
Kuda have seen major losses in its strategy to get these users presently, with its “bank of the free” tactics being the most obvious. This beg the big question: “Will it pay off in due time?”