In 2006, while working as an investment banker at Lehman Brothers, Oluseye Olusoga began contemplating a move back to Nigeria. But before doing that, he decided he needed enough resources to replicate the same quality of life he had in London.
Using his knowledge and skills as an investment banker, he began searching for opportunities to trade financial instruments back home, starting with treasury bills, which he got from Associated Discount House (now Coronation Merchant Bank).
“The market was very nascent at the time and I realised that there was no real liquidity or even transparency in terms of what the market was trading and so I started gathering information to see how I could solve this problem.”
His search led him to inter-dealer brokers in London but when he began looking for similar organisations in Nigeria, he hit a roadblock.
In 2010, he flew to Nigeria where he met with bankers and traders who told him that while there was an opportunity for inter-dealer brokers in the country, there was no regulatory framework for such a business.
Over the next year, he worked with these bankers and Nigeria’s Securities and Exchange Commission (SEC) to create a regulatory framework for inter-dealer brokers. The following year, he returned to Nigeria to set up Parthian Partners, the first inter-dealer broker in the country.
Democratising investment opportunities for Nigerians
Growth in Nigeria's startup ecosystem has been largely driven by fintech startups. In 2022, they were responsible for 59.4% of funds raised and 47.8% of funded startups.
Paystack, Flutterwave, Paga, PiggyVest, and Cowrywise are some of the better-known names with Paystack delivering one of the largest acquisition deals in the country and Flutterwave becoming the continent's most valuable startup.
While payment startups have attracted the most attention, wealth management startups have increasingly played a major role as inflation and currency devaluation drive Nigerians to seek ways to protect and grow their wealth.
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Startups like Risevest, Bamboo, and Trove Finance have sprung up in the past five years offering Nigerians access to stocks from local and international companies. Recently, Risevest completed the acquisition of Chaka, providing an opportunity for both companies to feed off each other’s strengths.
Against this backdrop, Parthian Partners launched i-invest in 2018 to provide a platform for Nigerians to trade treasury bills from the comfort of their phones.
“The idea of i-invest started cooking in 2017 after a conversation between myself and Abubakar Suleiman (Sterling Bank’s CEO) about how retail investors don't participate in the treasury bill market as much as we would like to. The conversation was also around how smaller financial institutions may also need that outlet to allow access to retail investors who may want to invest in government securities,” Olusoga tells Techpoint Africa.
By reducing the barrier to entry for retail investors, Olusoga explains that financial institutions get access to a larger pool of resources while reducing their dependence on one institutional investor. These retail investors also get a chance to grow their wealth, ultimately increasing the liquidity pool in a country.
Although it began with offering treasury bills, i-invest has slowly expanded its offerings to include equities, commercial papers, insurance, and mutual funds.
Users can create savings plans on the app, earning as much as 11% per annum while they can invest in fixed deposit notes from various financial institutions. The i-invest app also allows users to pay for utility bills, purchase airtime, and access financial news.
“The idea is that at some point, you’ll be able to access everything and anything money on the app without being limited to what your bank offers you.”
Engaging with regulators
Regulatory changes present significant challenges for any business and for those in the financial services sector, the risk is often higher. In 2020, the SEC issued a memo restricting Chaka from offering or advertising stocks. According to the Commission, the activities of the fintech startup were outside its regulatory purview.
Similarly, the Central Bank of Nigeria obtained an order enabling it to freeze the accounts of Rise, Trove, Bamboo, and Chaka. Per the CBN, all four companies were operating as asset management companies without licences and “utilising FX sourced from the Nigerian FX market for purchasing foreign bonds/shares.”
Fortunately, all four companies resolved their issue, with Chaka receiving SEC’s first digital stock trading licence and the CBN unfreezing the accounts of all affected startups. However, it underscores the challenges of falling on the wrong side of regulation.
Having actively engaged with regulators from the inception of Parthian Partners, Olusoga stresses the importance of interfacing with regulators as soon as possible.
“Understanding why the regulator is the way they are, what they think, and how they think will help you navigate the complex environment of Nigeria. It also allows you to have some insight so you can plan your business strategy.”
Furthermore, he states that engaging with regulators provides startups with a chance to influence policies. But where they are unable to influence policies, knowing what the regulator requires and sticking to it could save startups from problems further down the road.
Challenges of running a financial institution in Nigeria
One of the biggest challenges i-invest has faced came barely one year after it launched. Back in 2019, it only offered treasury bills, but that year, interest rates fell and investor appetite reduced. In response, the startup began offering other financial instruments.
“That was quite good and it also helped us because it was showing us how markets could change. It helped us to do a quick test run, even though it was live, on how you can pivot from one product to multiple products.”
It also faced technological challenges as it had to work with APIs from other financial institutions, leaving it dependent on whether those services functioned properly. With the recent spate of migration in the country, many companies have lost their employees, some losing as much as an entire department within a short time.
But while it is a factor no employer has any control over, Olusoga explains that i-invest has some strategies which it uses to guard against any potential effect. For one, it ensures it pays a competitive salary and offers flexible working conditions.
On the technology side, it has developed a strong culture of documentation that guarantees continuity even if a developer leaves. With many wealth management startups starting shortly after i-invest launched, he admits that it has had to deal with the increased competition.
Whereas some of its competitors offer stocks of foreign companies, i-invest has stuck to Nigerian companies and Olusoga points out that its decision has been influenced by the lack of a clear regulatory framework for that.
He argues that offering stocks that are outside the jurisdiction of Nigeria's SEC places investors at risk as the SEC cannot protect them in the event of a stock market crash or collapse of the company.
Furthermore, being audited by one of the big four auditing firms has forced it to have conversations around the source of its forex, what rates it uses, and anti-money laundering.
“I think that for us, without running the risk of doing anything wrong, we decided to err on the side of caution.”
Traction, funding, and expansion plans
Although inflation and currency devaluation have contributed to the growth of Nigeria's retail investment segment, the experiences of an entire generation hurt by the poor showing of companies listed on the Nigerian Stock Exchange have made it difficult to drive retail investments in companies on the NSE.
Recognising this, the Chief Executive Officer of the NGX, Temi Popoola, disclosed that the exchange plans to use technology to make it easier to discover and invest in listed companies.
Despite the difficulties associated with investing in the Nigerian market, i-invest boasts of more than 250,000 users since its launch. It has also facilitated transactions valued at over $100 million.
The startup has also not raised external funding but has been supported by its parent company, Parthian Partners.
“We’ve always had that temptation of people offering you money, but the question is, ‘What are you collecting that money for?” Olusoga queried. “We plan to continue to build to the point where the business is strong enough that if you wanted to extract value for existing investors, whether it's through listing on an exchange, there will be an opportunity to actually harness the full value or potential of what we've actually built,” he adds
Currently, i-invest only serves users in Nigeria, but with progress made with the African Continental Free Trade Area, Olusoga sees an opportunity for the startup.
“With the whole Africa Free Trade kicking off, the idea is that we want to be able to give people outside Nigeria the ability to invest in Nigeria and people in Nigeria the ability to invest in other African or West African countries.”