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_Micro-lending: This will unlock Africa's commerce

I've written here a few times on the potential that micro-lending can unlock in Africa's informal market - which employs over 80% of our youth. We cannot talk about youth employment and empowerment anywhere without talking about informal commerce. Unless, we've lived in Silicon valley and are stepping in Africa for the first time. I've been in Marikiti and Gikomba markets in Nairobi and some of the busiest and robust markets in Nigeria like Alaba international market, Balogun, Ladipo and Computer village. The sheer level of activities in these markets dwarfs anything you've seen in formal markets. Some of these markets never sleeps. You would think governments should have proper support systems to ensure that these people prospers in their trade and creates employment. One of the biggest growth impediments for these people is access to credit. I believe the market opportunity here is a blue ocean. The Silicon valley owners do not look at Africa as a place to birth great future unicorns, but I believe that whoever will crack this expansive market for micro-lending will be walking in a unicorn terrain. Let me give a few of my personal experiences:.

Case 1: Sometimes back, I was in Limuru running some errands. Limuru is a small agriculture town in Kenya. As I was chatting with a friend by the roadside, a big SUV pulled off nearby. A young lady stepped out. She was elegant and wore a sharp demeanor. It was hard not to notice her. She walked around loudly greeting the traders. Going by the attention she received from everyone around, I thought, and in fact concluded, that she was a local politician. Before we left, I overheard some women talking among themselves in local language, "Kaìrìtu kau ke mbia mùno. Nìko kaheyaga afiashara Aya mothe ma rìmuru marùùni (loans). Translated this means, "That young lady is very rich. She is the one who gives loans to all these Limuru traders". I learnt that she is among the savvy business people who have stepped into the micro-lending void and is offering loans to traders who repay on weekly basis. She does it in a very informal way but it was working for her.

Case 2: In 2016, I was working in Lagos. One evening, we were having dinner with a few of my friends. A young guy passed by to say 'hey' to one of us. After he left, our colleague remarked, "Do you know that guy owns a micro finance?" I would discover that the young man has built a large enterprise giving small loans for working capital to butchers and meat traders. That is his line. Only butchers and meat traders. He has hundreds of them as his clients in Lagos, Ibadan, Port Harcourt and many other cities. The loan is revolving and his clients pays particular amount in interest each day.

As an entrepreneur, I'm very gifted in picking business ideas from ordinary street conversations.

Case 3: Recently, when Covid-19 knocked out doors, we scaled down our operations to bare minimum. Suddenly, I had so much time and was looking for a few other things I could do. I got myself a stall at the local market place and started selling children clothing. Yes, this was one of sidehustle (I have shared about this in the past). Of course I was erratic and would open my shop two or three evenings a week.

One evening, a lady passed by and again seemed to be talking to everyone. By her looks, I thought she was either a local politician or a county government official. Again, I was wrong. She came to my immediate neighbor's place. They spent a lot of time talking. I could not hear what they were talking about. After she left, I asked my neighbor who she was. "You don't know this woman? She is the one who gives loans to all these traders. She is known everywhere - From Kibera, Kawangware, Mathare, Kangemi, Uthiru to Kikuyu. Even you if you want a small loan she can give it to you as soon as tomorrow". My neighbor gave me details on how it works. I found out that she advances loans to her clients from anywhere between KES 10 - 30k with a 30% interest. This is quite expensive but this serves as a clear indicator that she's serving a market where no one is effectively competing with her. Most traders pay a minimum of KES 500 per day. She uses a book to record and track payments. Just another manual process. Assuming that she had 500 clients, which my neighbor thought was an underestimation, her loan book could easily be anywhere between 5 - 15 million. With 30% interest, you can work out her gross returns. Of course there is loan defaults (for MFIs in Africa, loan default rate stands at 10 - 15%). It's now gone past 20% due to COVID-19.

These examples illustrate very clearly that informal trade financing is a virgin market. The opportunities here are yet to be tapped. But why is this so? Why is it that no one is willing to serve this market? One reason, is lack of good data and credit profiling. I saw one micro lender (in Y Combinator's 2020 Summer batch) is trying to build credit rating for the underbanked using your regular bill payments like rent, electricity, school fees for your children, cable TV etc. In other words it's a reverse way of assessing your income flows and your ability to service a loan. We'll write about this in future because there is a lot more into it to think about.

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William Mukaria | 31.08.2020