3 strategies to crack record-keeping technology in Kenya

The challenges of running micro and small businesses in Africa are vast. According to estimates,?at least 1000 small businesses close daily?in Kenya alone. Among these challenges are declining sales, record keeping, and access to capital. Specifically for small businesses, a lack of financing can affect daily operations such as restocking, delivery, rent, and other day-to-day financial obligations. And while there are several financing options available to larger enterprises, many small businesses struggle to access these options. The small business sector cumulatively employs over 90 % of the workforce and contributes upward of?30% of Kenya's GDP3; a paradox considered that most survive on personal loans to the owners or informal credit channels such as friends and family.?

Due to this segment's nature, the risk assessment question lies at the heart of the disparity. While this view is not necessarily wrong, the existing market challenge has always been: "how do we assess the risk profiles quickly" and "how do we effectively manage our risk?". All this points to the fact that the biggest challenge for financial providers is accessing information that can help them accurately estimate risk cheaply and quickly. And for small businesses, the challenge is putting together all their business records in a way that allows third-party financiers to assess their businesses' health accurately to avoid the high-interest rates and over-collateralized loans passed on to them in the absence of this information.?

Operating a small business

A typical micro and small business owner will either run the business personally or employ someone to run it. The owner's role spans making sales, managing business operations, marketing, and customer support. They will also handle procurement, processing payments, coordinating deliveries, and other business activities. To keep updated business records, they must record transactions as they happen, such as whom they owe, who owes them, sales records, and receipt book entries. Record keeping is time-consuming- and primarily manual, and consequently, record keeping in most cases is very purpose-driven and action-orientated.

Digitizing small business records?

The incentive to keep records is relatively low when operating a small business. Therefore bookkeeping for small businesses has to fulfill an immediate need because these businesses do not see bookkeeping as a long-term resource to analyze. Consequently, building historical business records are only possible by sorting through piles of physical books and paper records.?

There have been several efforts at digitizing the records for this business segment, and as it stands, no repeatable model is solving this efficiently. Considering the solutions that have tried solving the digitization problem at scale, we believe that solutions have to solve or, at the very least, appreciate the following?three main issues:

1. Record keeping is not the goal

Small business owners keep records for a purpose, which will reflect the type of records they document. Understanding what a business is trying to do or achieve with the record is critical to digitizing the process. In some cases, vendors create sales receipts to serve as a way to track inventory and count stock at the end of the week. In other cases, a record is merely a personal note to track which staff member rendered the services so that they know what is due to their staff at the end of the week. Understanding the end of the record is critical before one attempts to insert a new digital process.

2. Records are created within the business process.

Time is of the essence for small businesses. Therefore, the barrier to creating business records needs to be sufficiently low and should supplement existing business processes. Taking advantage of the right timing can allow the business owner to record a business transaction while executing the process they would have ordinarily followed. For instance, the business owner might write down a receipt because a customer requests this during the selling process. It's less likely that they will create a receipt after a customer has left. Understanding the business record's sequence will help create a meaningful intermediating strategy and increase the opportunity to capture this record.

3. Value trumps "good books."

Action over insight. These businesses seek value over good business data. Therefore the motivation to keep records has to be aligned with the activities that the record-keeping enables. More often than not, this value is selling more and accessing capital. Most small businesses need help to reach more customers and upsell or retain their current customers. They will be motivated to keep records if the record ensures growth through access to new sales channels, partnerships, or better-priced inventory, to name a few. They are also looking for ways to access better-priced credit or lines of credit that fit their purpose in frequency and terms. However, unlike most established businesses that can hire for gaps in knowledge and experience, small businesses will often rely on networks or digital tools to execute informed actions like managing discount programs or incentivizing their customer base. Tools that will help them better reach their customers, increase their access to credit, and provide ways to grow will inadvertently create record-keeping opportunities.

What to look out for

In a nutshell, micro and small business owners are not trying to do accounting or data entry; they are trying to grow their businesses. Tools that provide access to better information, new avenues to sell through, and access to credit without the stigma of bookkeeping have a better chance of success than traditional bookkeeping or accounting solutions. Too often, we see grand technology inserted without understanding the current behavior or intention of the business owner to the detriment of the technology providers.?

When the technology providers can understand the objective that drives this segment of businesses to keep records, the solutions stand a much better chance of having utility. This uptake will produce valuable data that, if used correctly, will power far superior risk models. The genius of this indirect method of collecting data is that it is less prone to customer gaming and is likely untainted due to?Hawthorne effects.

At?nobuk, we leverage best-in-practices UX design, process automation, and AI to meet the businesses where they are and make growing micro and small businesses more accessible. The name, 'no book,' is a statement of the vision of liberating these small businesses from piles of books and notes. It is also an assertion of the current reality that small businesses prefer not to have books but instead prefer to find ways to increase their sales, retain their customers, and access much-needed financing to grow!