Tugende, Uganda’s pioneering boda boda financing startup, has found itself in a precarious situation with its investor, Goldfinch. The startup, which holds the distinction of being Uganda’s most funded startup according to Digest Africa, has come under scrutiny for a financial transaction that appears to violate its loan agreement.
The issue at hand involves a $1.9 million loan that was extended from Tugende Kenya to its Ugandan counterpart. This transaction, while seemingly innocuous, contravenes the stipulations of the loan agreement that Tugende has with Goldfinch.
The startup operates through three entities: Tugende Global, their Mauritius-based holding company; Tugende Uganda, their legacy business responsible for 89% of their outstanding loans; and Tugende Kenya, their newer business representing 11% of outstanding loans.
In October 2021, the Goldfinch Protocol extended a $5M loan to Tugende Kenya, set to mature in October 2023. Goldfinch, as per their website, is a decentralised credit protocol that allows for crypto borrowing without crypto collateral—with loans instead fully collateralized off-chain Goldfinch has investors who provide USDC to the protocol to be utilised by borrowers. There are two ways in which Goldfinch makes investments: as a backer (directly into a company) or as a liquidity provider (an LP into a fund). Goldfinch directly backed Tugende Kenya.
However, a recent review of Tugende Kenya’s reporting in December 2022 revealed a breach of their facility agreement. Tugende Kenya had made a $1.9M loan (from the $5m Goldfinch loan) to Tugende Uganda without the knowledge or consent of the Goldfinch community, causing them to violate their loan agreement covenants.
Upon discovering this breach, Goldfinch informed its community and sought permission to work with Tugende to rectify the situation. The proposed remedy was for Tugende to raise an equity round to inject fresh capital and cover the $1.9m debt owed to the Goldfinch community.
However, the situation has since escalated. Over the past six months, it has become clear to Goldfinch that Tugende Uganda’s financial health is in a more precarious state than initially believed. The startup has been hit hard by macroeconomic factors such as inflation and rising energy costs, coupled with managerial missteps, including “an aggressive headcount increase in 2022”.
This unauthorized intercompany loan, intended to support the struggling Uganda business, inadvertently exposed Goldfinch to the situation in Tugende Uganda. Furthermore, it deprived Tugende Kenya of the capital it needed to grow its loan portfolio and generate the profits required to repay the loan.
After extensive discussions with the Tugende team, its lenders, advisors, and external consultants, it became evident that a group-level debt restructuring was necessary for all three Tugende entities. This restructuring will likely lead to a material write-down, potentially up to the total amount of the principal value of the Goldfinch loan to Tugende.
Warbler Labs, acting on behalf of the Goldfinch Community, has appointed a global Tier 1 law firm to protect Goldfinch interests. They continue to work with the Tugende team and prospective equity investors to ascertain the exact details of the restructuring.
In a statement released by Tugende, Founder and CEO Micheal Wilkerson did not confirm the inter-company loan, but confirmed they were looking for new investment, “We are in ongoing discussions with all of our current investors, including Goldfinch/Warbler, on capital solutions that ensure positive outcomes for all of our stakeholders and ensure Tugende’s long-term sustainability,”
“These discussions include advanced talks with strong candidates for new investment along with collaborative solutions with existing investors. We expect to share good news in the coming months as we finalise the detailed next steps.” Michael added.