TechInAfrica — Internet services company Opera has suffered a short-sell assault based on allegations of predatory lending practices by its fintech products in Africa.
Hindenburg Research issued a report claiming that Opera’s finance products in Nigeria and Kenya have collided with prudent consumer practices and Google Play Store rules for lending apps.
NYC-based Hindenburg — managed by financial analyst Nate Anderson — continued to suggest Opera’s US-listed stock was grossly overvalued.
That is an introduction to the key data, however, there are a few extra shades of the who, why, and where of this story to separate before finding what Opera and Hindenburg needed to state.
Opera’s fintech products in Africa (and also Opera’s Cashbean in India) are at the center of Hindenburg Research’s brief and short-sell position.
The core of the Hindenburg report is that because of the declining market share of its browser business, Opera has pivoted to products generating revenue from predatory short-term loans in Africa and India at interest rates of 365-876%, so Hindenburg claims.
The firm’s reporting proceeds to guarantee Opera’s payment products in Nigeria and Kenya are afoul of Google rules.
the report says, “Opera’s short-term loan business appears to be…in violation of the Google Play Store’s policies on short-term and misleading lending apps…we think this entire line of business is at risk of…being severely curtailed when Google notices and ultimately takes corrective action.”
According to this, Hindenburg proposed that Opera’s stock should trade at around $2.50, around a 70% discount to Opera’s $9 share price before the report was released on January 16.
Additionally, Hindenburg unveiled that the firm would short Opera.
Founder Nate Anderson confirmed that Hindenburg goes on to hold short positions in Opera’s stock. This means the company could benefit financially from decreases in Opera’s share value. The company’s stock dropped some 18% the day the report was published.
On motivations for the brief, “Technology has catalyzed numerous positive changes in Africa, but we do not think this is one of them,” he said.
“This report identified issues relating to one company, but what we think will soon become apparent is that in the absence of effective local regulation, predatory lending is becoming pervasive across Africa and Asia…proliferated via mobile apps,” Anderson said.
While the greater part of Hindenburg’s critique was centered on Opera, Anderson also targeted Google.
“Google has become the primary facilitator of these predatory lending apps by virtue of Android’s dominance in these markets. Ultimately, our hope is that Google steps up and addresses the bigger issue here,” he said.
Google spokesperson said in a statement, “Our Google Play Developer Policies are designed to protect users and keep them safe, and we recently expanded our Financial Services policy to help protect people from deceptive and exploitative personal loan terms. When violations are found, we take action.”
Google did not confirm if a particular action would be taken regarding Opera’s fintech products in Africa.
Meanwhile, according to Opera and a cursory browse of the site, Opera’s apps in Nigeria and Kenya are still available on GooglePlay.
Opera said in a company statement, “We have carefully reviewed the report published by the short seller and the accusations it put forward, and our conclusion is very clear: the report contains unsubstantiated statements, numerous errors, and misleading conclusions regarding our business and events related to Opera.”
Opera added it had proper banking licenses in Kenyan or Nigeria. “We believe we are in compliance with all local regulations,” said a spokesperson.
Regarding the firm’s contact with local regulators related to its allegations, Anderson said, “We reached out to the Kenyan DCI three times before publication and have not heard back,” he said.
In accordance with Africa’s startup scene, there’ll be several things to follow surrounding the Opera, Hindenburg affair.
The first is the means by which it might impact Opera’s business moves in Africa. The company is occupied with the competition with other startups across payments, ride-hail, and several other verticals in Nigeria and Kenya. Being accused of predatory lending, depending on where things go with the Hindenburg allegations, could harm the brand equity.
There’s additionally the speculation of if and how Google and regulators in Kenya and Nigeria could respond. Contrary to some perceptions, fintech regulation isn’t non-existent in both countries; neither are regulators totally ineffective.
Kenya passed a new data privacy law in November and Nigeria recently established guidelines for mobile-money banking licenses in the country, after an extensive Central Bank review of best digital finance practices.
Nigerian regulators showed they are no pushovers with foreign entities when they slapped a $3.9 billion fine on MTN over a regulatory breach in 2015 and threatened to eject the South African mobile-operator from the country.
Regarding the short-sellers in African tech, they are a relatively new thing, mainly because there are not many startups that have gone on to IPO.
As of Wednesday on January 22, there were signs Opera may be shaking off Hindenburg’s report as the company’s shares had rebounded to $7.35.