The Case for Logistics as Financial Inclusion

The Importance of Formalizing Last Mile Delivery

While they go by different names in different parts of the world including duka in parts of Africa and kirana in parts of India, small informal retail shops represent the foundation of retail in emerging market economies. These traders do anywhere between a couple hundred to several thousand USD in sales per month. The World Bank estimates that there are more than 400 hundred million small and medium sized retailers that can represent more than 50% of all trade in their respective countries.

There is no question that access to credit can be a key growth driver for these businesses. A number of players have stepped into this space and innovated around credit services to local shop owners including M-Shwari, Branch, Tala and others like Jaza Duka. At the same time, credit is not a panacea. These small shop owners face a host of challenges that cannot be solved by money.

One of them is procuring the goods they are trying to sell - as in how to order them, when to receive them and from whom can they buy them. While more money means they can buy more stuff, more money does not guarantee that stuff shows up on time, at the right price or in the right condition. What most of these businesses struggle with are informal supply chains. The informality around the procurement of their supplies creates a number of challenges:

1. Pricing - Informal suppliers don’t publish price lists. You call them and they tell you what they feel like the price should be on that day. Prices are subject to volatility because most informal suppliers are profit maximizing on every sale, if they think they can sell at a higher price to someone else they probably will.
2. Ordering - This usually involves calling someone on a cell phone. If they don’t pickup or are otherwise busy your order will have to wait. Even if you get the price quote you will have to check against competitors and in the meantime the price may have changed.
3. Delivery - Once you order you have no visibility on delivery. Your best bet is you have the delivery driver’s cell phone number and you keep calling him until he shows up. A trader who needs products for a client event on a specific day in order not to lose a sale may opt not to make a purchase for fear of being stuck with excess inventory if the delivery shows up late. All sorts of business can be lost here.
4. Reliability of Supply - Does the supplier have the stock you need? You will have to call and find out, and if he doesn’t you will need a list of other suppliers you will need to keep calling until you figure out whether or not what you are looking for is available.

Underlying all of these issues is an overall lack of transparency in the buying and selling process. Small traders are at the mercy of any wholesaler or distributor. As a result, these small businesses may have dozens of suppliers they cycle through on any range of products in order to stock their shops, distracting them from selling and meeting the needs of their customers.

Formal, digitized logistics to the retail shop owner with transparent pricing, transparent delivery timings and reliable service is perhaps as important as access to credit. By creating regularity and predictability in the supply chain, small shop owners can plan their purchases, manage their customers and expand their business offerings in ways that informal supply chains not only limit, but in some cases actively prevent. Ultimately empowering these small businesses to grow and expand will require an ecosystems based approach that combines the availability of credit with transparent supply chains and low-cost digital transaction platforms. A combined value proposition that addresses the core issues faced by small retailers can go a long way to building a formal, digital economy based on transparency, fairness and a level playing field. The natural result will make these businesses increasingly visible and included in rapidly growing emerging market economies.