Building Trust in the Township Economy with Koola Capital

Beyond Spaza Shops: A Broader View of the Township Economy

One of the misconceptions Koola is working to dispel is that township economies are defined solely by spaza shops.

“The informal economy is much more than spaza shops,” Katie emphasises. “There are B2B businesses building containers, providing cleaning staff, delivering supplies, or even managing construction projects. That’s where we’re focused.”

By financing contract-driven businesses – such as suppliers to petrol stations or schools – Koola helps SMEs access working capital that enables them to scale sustainably.

This focus also reduces risk. A small contract with a reliable corporate client often represents a predictable revenue stream, making repayment more manageable.

Tackling the Cash vs. Digital Divide

Cash remains a dominant force in township economies, but digital adoption is accelerating. In one example, Katie describes standing in line at a popular restaurant in Khayelitsha and observing customers using cash, cards, Apple Pay, and virtual cards interchangeably.

This fragmented payments landscape reflects both the persistence of cash and the rise of digital tools. Koola encourages digital adoption where possible, particularly via EFTs, but recognises that cash will remain central for years.

Their philosophy is pragmatic:

• Meet entrepreneurs where they are.

• Build solutions that integrate with current behaviour rather than force drastic change.

• Support gradual shifts towards more formalised digital practices.

Managing Risk in High-Volatility Markets

Financing informal businesses is undeniably risky. High volatility, thin cash reserves, and a lack of formal documentation present significant challenges.

Koola’s risk management approach includes:

1. Stepwise growth – lending in controlled increments and refining processes before scaling.

2. Segment focus – narrowing in on specific types of businesses (e.g., B2B contracts) to better understand risk patterns.

3. Community insight – leveraging relationships and ground-level knowledge to assess creditworthiness in ways that spreadsheets alone cannot.

4. Technology development – building back-end tools for fraud detection, risk monitoring, and data-driven decision-making.

The results are promising: default rates have not only stabilised but are trending lower as Koola gains more experience in the market.

The Human Side of Lending: Trust and Relationships

Perhaps the most distinctive feature of Koola’s model is its relationship-driven ethos. Katie and Oliver personally met the first 100 businesses they financed. Their team, including community-based partners like Z in Khayelitsha, continues to work closely with entrepreneurs.

This proximity builds trust. As Katie explains, entrepreneurs want to know their lender will “have their back” if payments are delayed or contracts shift. Unlike traditional banks that apply rigid penalties, Koola positions itself as a long-term partner.

Word of mouth has become one of their strongest growth drivers. But this also creates accountability – no entrepreneur wants to recommend a lender who might damage their own reputation.

Lessons Learned from the Frontlines

Katie reflects candidly on the early days:

• Don’t scale too fast: Pressure from venture capital investors might have pushed them to lend aggressively, which could have increased defaults. Bootstrapping gave them space to refine their model sustainably.

• Compliance matters: While bureaucracy is a barrier, compliance is essential for scaling. The challenge is designing processes that don’t alienate informal entrepreneurs.

• Cash is resilient: No matter how advanced digital tools become, solutions must account for ongoing cash dependency.

These lessons have shaped Koola’s roadmap for the next 12 months.

What’s Next for Koola Capital

The future is ambitious but grounded. Over the next year, Koola aims to:

• Expand its loan book from R2.2 million to around R9 million.

• Enhance technology with stronger fraud detection, more data integrations, and smoother backend processes.

• Continue raising capital – both debt and equity – to fuel expansion while maintaining discipline.

• Build towards acquisition readiness, ensuring compliance and KYC processes align with potential banking-sector standards, without compromising accessibility for informal businesses.

Ultimately, Koola’s mission is to enable township entrepreneurs not only to survive but to scale – helping them transition from micro-operators to SMEs that meaningfully contribute to South Africa’s economy.

Why This Matters

South Africa’s unemployment crisis and sluggish growth cannot be solved without unlocking the potential of township economies. According to Stats SA, small businesses already employ millions, yet many remain stunted by lack of access to the right kind of finance.

Innovators like Koola Capital demonstrate that impact and profitability are not mutually exclusive. By combining technology with human-centred design, they are rewriting what inclusive finance can look like.

As Katie puts it:

“Money isn’t the silver bullet, but it is important. Our job is to provide it responsibly, in a way that grows businesses rather than burdens them.”

Koola Capital’s journey is a case study in patient innovation – moving deliberately, learning from mistakes, and building trust in markets where mistrust is deep-rooted.

For policymakers, investors, and fintech founders, there are critical lessons here:

• Understand the lived realities of entrepreneurs.

• Adapt models to local contexts rather than forcing imported solutions.

• Prioritise long-term trust over short-term revenue.

The township economy is vast, dynamic, and indispensable to South Africa’s future. Companies like Koola Capital are proving that with the right mix of empathy, technology, and discipline, financing the informal sector is not only possible – it’s essential.