As the Head of Debt Capital Markets for JUMO, Sayuri Aoyama has been instrumental in creating innovative funding solutions aimed at promoting financial inclusion. With a background in investment banking and a passion for inclusive finance, Sayuri spearheaded the launch of JUMO’s Asset-Backed Securitisation (ABS). It’s the first and so far, only e-money securitisation in action. She sheds light on what it’s all about, the launch in Uganda and why it matters. 

Having worked in the inclusive finance sector for years, with a fixed-income investment banking background, I’ve always been fascinated by Asset-Backed Securitisation (ABS) designed to promote financial inclusion. The ABS structure can mechanically be replicated and scaled to mobilise more private and public capital powerfully for inclusive finance to narrow the huge funding gaps.

However, in the wider market, a challenge persists: the inability to articulate underlying assets’ recovery value and timing. Microfinance lacks a local secondary market, and recovery often relies solely on loan officers visiting villages for manual collection. This issue was magnified during the COVID-19 pandemic, when people’s mobility was restricted.

Using technology to overcome challenges

At JUMO, we use advanced technology to address these challenges. Our AI and machine learning capabilities determine suitable individual loan sizes based on affordability, and then cost of risk and the corresponding lending rates are calculated on a real-time credit scoring system.

Our short-duration e-money loans are 100% digital and accessible through any mobile phone. The nature of high velocity makes the loans resilient and actively manageable. JUMO also prioritises ongoing customer education to enhance financial literacy. This, in conjunction with mobile money auto-collect mechanisms, means over 96% of loans disbursed by JUMO are successfully recovered!

What’s really worth noting is that this remarkable recovery rate remained consistent throughout the economically challenging COVID-19 lockdown period. This is particularly significant because a considerable portion of the customers served are among the most vulnerable in the markets JUMO operates in. Between 20-30% of these customers live on less than $2 a day, and 50-60% live on less than $5 a day.

In short, the predictability of recovery value and timing of the e-money customer loans JUMO operates, coupled with high capital velocity, offers investors swift capital recovery even in unfavourable scenarios or circumstances. We are really grateful to Standard Bank’s securitisation team, who have been on this journey with us. The pan-African bank has been the first to join us in this method of funding. Standard Bank’s unparalleled commitment and professional expertise in the African capital markets helped get us here. 

What is ABS?  

Asset-backed securitisation (ABS) is a debt financing instrument originally developed for the US and European debt capital markets to fund mortgages, credit card loans, auto loans, and more.

It is novel that JUMO has specifically tailored ABS to finance e-money loans in Africa, starting with Uganda as the first test case.

Unlike traditional bank lending, ABS stands as a sophisticated and structured product with the underlying assets ringfenced in the insolvency remote SPV, enabling investors to invest in the quality of these assets. This means that investors can reduce the risk exposure to the performance of underlying assets.

Another feature of ABS is the tranching of debt facilities in order of seniority. Senior facilities come with more credit enhancement, while mezzanine facilities offer less credit enhancement but reward higher interest rates. An originator typically subscribes to an equity tranche that is subordinated to senior and mezzanine facilities, further demonstrating its commitment.

The tranching mechanism provides added protection to senior facility investors, enabling institutional investors (as senior facility inverters) to extend lending confidently to marginalised and financially excluded African groups. This is very important, given investing in Africa is generally associated with many risk factors.

Key features of the JUMO Uganda ABS structure

• A robust legal framework ensures integrity, viability, and compliance with relevant laws, tax regulations, accounting standards, and regulatory requirements. 
• Credit enhancements, achieved through over-collateralisation and pre-funded liquidity reserves, are in favour of senior facility investors.
• Both the underlying assets and debt facilities are denominated in local currency to prevent currency mismatches.
• JUMO uses AI and machine learning-based real-time lending capabilities to service the underlying assets of e-money loans.  
• Our Customer Operating Principles (COPs) were designed to uphold customer protection through information transparency, data security and privacy, and customer education. JUMO’s COPs framework and its implementation have been recognised as the best practices by leading financial inclusion organisations.  

Positive impact and job creation

The ABS financing facility we’ve rolled out in Uganda is a financial innovation that will be a catalyst for social change. This initiative will have a positive spill-over effect on job creation. An annual survey of entrepreneurs who use JUMO’s platform to access financial services shows that 50% of micro-SMEs employ at least one other person. By providing instant access to lower lending rates on mobile phones, the ABS financing programme empowers entrepreneurs with limited access to funding to grow their businesses and, in turn, create more jobs. 

It’s estimated that the JUMO Uganda ABS facility will assist over 1.6 million customers in Uganda, a portion of whom will be first-time borrowers.

The journey to launch

The journey to bring the JUMO Uganda ABS to life took nearly two years. Along this odyssey, we encountered many challenges. However, working with exceptional external professionals and colleagues, the roadblocks that initially seemed massive and uncontrollable became small and manageable. We were motivated by a mutual aim to create a historic e-money securitisation for the greater good and held countless discussions to ensure the best outcome for the transaction. Being part of this journey has been a privilege, and I am very proud of what we’ve achieved and grateful to everyone involved.

Future expansion

Looking ahead, we plan to expand the JUMO ABS program to other active markets and invite new investors, propelling financial inclusion across Africa. As it grow, the legal, regulatory, tax, and accounting frameworks for the ABS structure will pave the way, facilitating further capital deployment to achieve greater financial inclusion.

Connect with Sayuri