The Nigerian tech ecosystem is undoubtedly one of the most vibrant in Africa. It is also the most attractive for many startup founders who are constantly innovating and creating solutions while taking advantage of the opportunities that abound.
In view of the innovations and disruptions, it is important not to forget the one tech startup paving the way for financial inclusion among the informal sector in Nigeria in the area of micro-pensions. That tech startup is Awabah.
We will focus on the inspiration behind the company, the founder, the pensions landscape in Nigeria, and Awabah’s business model and prospects.
How Awabah came about
Awabah is a digital micro-pension platform for Africa’s workforce, creating a sustainable future for every African. The company is regulated by the National Pension Commission. The company commenced operations in 2020, founded by Tunji Andrews to improve financial inclusion in the informal sector in Nigeria, which accounts for 93% of all employment in Nigeria. During the lockdown and seeing how vulnerable a lot of people were, Awabah saw it as an opportunity to introduce micro-pensions as a key financial tool to improve the lives of Nigerians and create sustainability. This is based on the premise that the entire informal sector in Africa lives on a day-to-day basis without structure and sustainability.
The vision and the direction of the organization have been the same. It’s tied to creating a sustainable future for all and as social security for informal sector workers. Developing/ Third World countries have a large informal sector which implies that there is a large adult and aged population that are poor and don’t have any social security. In India, for instance, there’s a huge population of aged people in poverty who have not saved much and hence have nothing to fall back on. Nigeria is not left out.
Tunji Andrews (Founder/ CEO) – Tunji graduated as an Economist from Lagos State University and is a Financial inclusion advocate and Creative entrepreneur. He has worked in various organizations, including the Capital market as a Junior analyst explaining financial services to customers. A job he succeeded at due to his passion for finance and background in Economics. He later worked on Radio and TV, which led to a 10-year stint speaking about financial terms, sometimes as a guest speaker, host or news anchor. He also had a stint with the National Bureau of Statistics working closely with the Statistician-General at the time.
Oluwabukolami Ajisebiyawo (Co-founder) – Bukolami is a graduate of the University of Ibadan and is a full-stack software engineer. She is experienced in developing a wide range of APIs and user-friendly web applications, frameworks and technologies for frontend and backend development.
Micro Pension Plan refers to an arrangement under the Contributory Pension Scheme (CPS) that allows the self-employed persons and persons working in organizations with less than three (3) employees, to make financial contributions towards the provision of pension at their retirement or incapacitation.
There are no specific micro-pension licensed operators in Nigeria; although they exist in countries like Ghana, which practices a three-tier pension system. In Nigeria, it is a one-size-fits-all system where the available licensing gives the full spectrum coverage, to reach both formal and informal markets, which requires more resources, not only in capital base but by having a physical branch in every federation.
Pensions fund administration is the basis of what Awabah does (while not being a Pension Fund administrator themselves), they sell a sustainable future by partnering with traditional Pension fund administrators. The onboarding of new enrollees is managed by Awabah, having observed the operations of companies like Pinbox, a Singapore-based tech platform committed exclusively to digitizing micro-pension inclusion in Asia, Africa, Latin America, and the Caribbean.
The company makes its profit from servicing Pension savers while leaving the investment and administration of the saved funds to the Pension Fund Administrators. For the customers, however, returns are generated by investing in government securities (federal and state government bonds). There are other investments in the stock exchange, corporate bonds, real estate, private equity, infrastructure funds, and the accumulated capital which can be paid out in a lump sum or as an annuity on the agreed-upon withdrawal date. Uniquely, Micro-Pension enrollees have the option to withdraw 40% of their monies after three months.
Micro Pensions help a large percentage of adult Nigerians who are not on the Contributory Pension Scheme, are self-employed or working in organizations with less than 3 employees (MSMEs). Awabah currently has over 5000 individuals on its platform.
In Nigeria, there are no direct competitors; however, it exists in Ghana, notably the Peoples Pensions Trust micro-pensions scheme. Micro-pension also exists in India, Singapore, Uganda, Kenya, Chile and other countries.
On raising capital
Awabah is funded by the resources of the founders and further raised money through a Pre-seed funding. In August 2021, $300,000 was raised from angel investors across the country. The money enabled the company to expand into Kwara, Osun, Edo and Abuja. The main operations and fieldwork are, however, being done in Lagos. The goal is to reach the entire 36 states.
Furthermore, the company has good relationships with pension fund administrators in Nigeria, as well as Micro-pension fund administrators in India, Singapore, and Ghana to learn and adopt best practices in its operations.
According to the founder, “Product awareness is a challenge because it requires a lot of communication, community building and sensitization because ultimately you need the populace buy-in, partly because micro-finance is quite new to Nigerian. Also one has to demystify savings for pensions for the average Nigerian. The scheme still needs a lot of awareness. The average Nigerian on the street knows about banking but is unaware of micro-pensions, so explaining from scratch is key”.
Also, the voluntary nature of pensions contribution is a challenge as an enrollee may only contribute an amount of money when they have incentives or are motivated to do so.
The startup announced its partnership with Stanbic IBTC pension managers in May 2022. The partnership will allow Awabah to sell mandatory pensions so that pensions can be made available for small startups and businesses and actualize the long-term goal to deepen micro pension inclusion across Nigeria.
Tunji states, “The goal is 5 million customers in 5 years for micro pensions, as well as sign up formal pension players and startups who have grown and are solving all kinds of problems across Nigeria”.
The previous year, Awabah had partnered with LSETF to expand micro pensions to grassroots. The partnership is built on Awabah’s referral system, which rewards users of the platform when they refer new enrollees.
As the founder states, “In 5 years, if the name ‘micro-pensions’ is not known across the country as it is with banking then we have failed or have not done enough. In 5 years we should have created enough topline products to onboard customers as well as signed up small businesses to the mandatory pensions scheme”.