International trade in Africa is under-financed with only 30% of trade volumes intermediated by banks. This large financing gap disproportionately affects small and medium-sized businesses as large corporations absorb the lion’s share of the limited capital available.
Focusing on this gap, Lagos-based FrontEdge is on a mission to facilitate the growth of African cross-border trade by providing SME exporters and importers with the capital and expertise to reach scale and be competitive on the international stage.
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To embark on its mission, digital trade-finance platform FrontEdge has raised at total of $10 million in debt and equity through a funding round. TLG Capital led the fundraising round and other investors include, digital freight forwarder, Flexport. FrontEdge provides a modern platform to manage the financing, logistics, insurance, FX, and cross-border payments associated with moving goods across borders.
Founded in 2021 by Moni Alli, FrontEdge emerged to solve intractable problems that he encountered first-hand while leading digital transformation efforts for African financial institutions. Through his experiences at McKinsey & Company and Development Partners International, Alli discovered that SME exporters and importers found it difficult to access trade finance to support their operations. “SMEs are the cornerstone of our economies, and the export market presents a significant opportunity for small and medium sized African businesses. However, from Lagos to Mombasa, business owners are constrained by an inability to finance their exports as well as a lack of support at every stage of the export process. FrontEdge was founded to address both challenges through a seamless technology platform tailored to cross-border traders” said Alli, who founded the company after completing his MBA at Harvard Business School.
For African business owners, participating in international trade is capital intensive, with typical transactions amounting to hundreds of thousands of dollars and extending into the millions for higher-priced commodities. In this context, working capital gaps present serious operational challenges for traders, especially SMEs that cannot readily rely on funding from large financial institutions, which are not equipped to address their unique operating models.
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For example, when trading agricultural commodities, an SME exporter immediately pays their suppliers, who may be large farmers or produce aggregators. However, the exporter’s buyers do not pay them back in full until the goods have been shipped, have arrived at their destination, and have been inspected and cleared. This working capital gap between when exporters pay for goods and when they are in turn paid back by their buyers limits an exporter’s ability to grow and fulfil more orders.
FrontEdge steps in to bridge this gap by providing upfront cash to exporters based on transaction-based underwriting without a request for collateral, unlike banks. Its digital trade finance product accelerates financing as well as reduces the cost of serving SME exporters. FrontEdge aspires to be a digital operating system for African traders. “We aim to facilitate trade as a one-stop shop that provides both working capital and software tools,” said Alli.
The opportunity to facilitate trade in Africa is substantial. International trade volumes across Africa are worth $1.2 trillion annually. With a view to expand across the continent, FrontEdge has first established operations in West Africa. “TLG is proud to support FrontEdge in its mission to help African SMEs prosper, serving as a crucial conduit to provide access to capital for Africa exporters and financial empowerment. FrontEdge is strategically placed to tackle an important problem that must be solved for African traders to effectively engage in global trade and we believe that the leadership will execute on the vision” said Johnnie Puxley of TLG Capital.
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Explaining the impact that FrontEdge aims to achieve, Alli said, “FrontEdge was built around the tenets of UN Sustainable Development such as Goal 8: Decent Work and Economic Growth and Goal 2: Zero Hunger. We are working to support African entrepreneurs and ensure that our clients sustainably source their goods and enhance job creation in the process.
