Mastercard helps bring tech and growth opportunities to some low-income areas of Nairobi

For more than seven years Edi Mbaiga’s been running her general goods shop in the Kawagnware slum of Nairobi. It’s provided for her family and she’s been keen to expand.

But, like most of Kenya’s 100,000 micro-merchants, she’s been held back because as a shopkeeper dealing in cash, she hasn’t had access to affordable credit. Thanks to a pilot project spearheaded by Mastercard that may soon change.

Mbaiga’s shop, which sells everything from fruit to soap, is one of 1,000 businesses in low-income areas of Nairobi that are trialing a program called Kionect. It gives owners the ability to order and pay for stock via SMS on a phone, thereby building up a digital transaction record which could be used to access credit.

“Kiosk owners are the heartbeat of their communities,” said Michael Elliott, vice president, Mastercard Labs for Financial Inclusion, which developed the product, in partnership with wholesaler and distributor Kaskazi, Diamond Trust Bank, and Unilever. “We have worked hand-in-hand with micro-merchants to understand their daily hurdles.”

Challenges

One of the challenges that micro-merchants like Mbaiga face is that they have limited resources and may just sell up to $20 worth of goods a day, said Unilever’s Bruno Witvoet, executive vice president for Africa. And without bank accounts, credit cards, or a credit history it’s difficult for them to keep their shelves properly stocked and to expand.

Through the project, merchants have access to micro-financing provider Musoni, which accepts the payment history from Kionect as a way to determine credit-worthiness, offering small loans with short payback periods. As the merchant demonstrates responsible repayment, the credit limit and loan duration can increase. And that can give Mbaiga, who supports her father and her two school-aged children, the means to expand her shop.

“For kiosk owners, access to basic financial services holds the potential to expand their business and contribute to the vibrancy of their communities,” said Juliet Ongwae, chief innovation officer at Musoni Kenya. “This product heavily relies on the micro-entrepreneurs’ transactional data for credit assessment, therefore making it accessible to micro-entrepreneurs who lack conventional collateral to secure their loans.”

David Jackson Kileo runs his Kaka Shop in the Kawangware area of Nairobi.

Kawangware entrepreneur David Jackson Kileo, nicknamed Kaka, likes Kionect for another reason: the goods are delivered right to his eponymously-named Kaka Shop, where he sells general merchandise ranging from bread to painkillers. This means the 23-year-old, who has been in business for a year, doesn’t have to shut down his store when he needs to restock. He just sends his order to Kaskazi from his phone.

The best thing about the program is the SMS order confirmation, Kileo says.

“Previously there was no way of knowing how much I owed till the order was brought to me,” he said. “In some cases, I had to send it back as I didn’t have enough money with me.”

The reliance on cash is a challenge for Kenyan merchants, and for Africa as a whole, where 95 per cent of transactions are made with cash, or an e-wallet system like Safaricom’s M-Pesa, according to Ernest & Young’s Attractiveness Program Africa 2017 report. Without adequate cash, micro-retailers can’t grow, as most of the loans they might be able to access come with exorbitant interest rates.

This issue and the whole process of running a business should be more efficient with Kionect, Mastercard’s Elliott said.

Potential

And there’s growth potential – for micro-retailers such as Mbaiga and Kileo and for companies such as Mastercard.

The African continent’s economy as a whole is expected to hit $3 trillion by 2030, with East Africa the fastest-growing region, according to Ernest & Young. Mastercard sees this, and Africa’s increasing population of youth aged 15 to 24 (projected by the United Nations to grow from 226 million in 2015 to 321 million by 2030), with its affinity for all things digital, as an opportunity to promote greater financial inclusion through mobile technology.

“This Mastercard technology opens up a new avenue for micro-retailers to grow their business, increase customer demand, and ultimately contribute to economic development in Africa,” Elliott said.

Kawangware is a slum just west of Nairobi’s city centre.