Kenyan BNPL Startup, Watu, Profits Decline by 85% to $1.2 Million, Due to a Rise in Loan Defaults

Kenyan startup Watu Holdings, known for its buy-now-pay-later (BNPL) services, has seen its profits decline by 85% due to a rise in loan defaults in 2024. The company’s earnings dropped by 85%, falling to just $1.2 million from $7.6 million the year before. This sharp decline is mainly because more people are struggling to pay back their loans, especially in Kenya, Uganda, and Sierra Leone.

Watu’s business focuses on lending to informal workers like boda boda riders, those motorcycle taxi drivers you see everywhere, who usually can’t get loans from regular banks. This approach helped Watu grow fast, but it also means the company is very sensitive to changes in its customers’ incomes. When people lose their jobs or face other money problems, they often miss loan payments, and that’s exactly what’s been happening lately. This rise in loan defaults has hit Watu’s profits hard.

Watu offers several types of loans. Its main product is Watu Boda, which helps people buy motorcycles and three-wheelers. They also give loans for mobile phones (Watu Simu), cars (Watu Gari), and school fees (Watu Shule). More recently, they started financing electric vehicles, hoping to tap into the growing interest in cleaner transport options.

Watu profits decline by 85% due to rise in loan defaults

Interestingly, not all of Watu’s markets are struggling. In Tanzania, where Watu operates through a separate company called Watu Tuu Limited, profits nearly doubled to $5 million. This shows that while some countries are facing tough times, others are doing better.

The challenges Watu is facing are common among many lenders in East Africa who focus on small loans backed by assets like motorcycles and phones. As borrowing costs go up and more people find it hard to repay, companies like Watu are feeling the pressure. Kenya’s informal economy, where many of Watu’s customers work, has been especially hit by these difficulties.

Car & General, a major company listed on the Nairobi Securities Exchange that assembles and sells motorcycles, owns nearly 30% of Watu. They have been closely watching Watu’s performance because it affects their own business too.

Watu was started in 2015 by Andris Kaneps, a Latvian entrepreneur. Since then, it has raised over $20 million from investors and was one of the few Kenyan startups to make steady profits, until now. The company’s latest funding round happened in early 2024, showing that investors still believe in its future despite the recent setbacks.

With Watu profits declining by 85% due to a rise in loan defaults, the company faces a tough road ahead. They will need to find better ways to help customers repay their loans and manage risks. This situation is a reminder of how tricky it can be to lend money to people with unstable incomes, even when the goal is to help them improve their lives.

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