Blockchain Is Doing Wonders For Informal Economy In Kenya

The same technology used in the billion Dollar industry of Cryptocurrencies is also helping a fresh vegetable merchant in Kenya. The revolutionary technology is helping to measure the creditworthiness of a $20 billion economy driven by informal traders.

This is a problem that not even Kenyan banks have managed to solve.

A More Comfortable Approach

Hundreds of small retailers today are able to utilize their smartphones to gain access to loans for buying the merchandise necessary to drive their business. From onions to bananas, the platform lets them purchase straight from the producers and receive them directly to their place by Twiga Foods Ltd., a Kenyan start-up. The service saves every trader the task of having to go to the market. It’s not only comfortable, but also financially beneficial. It saves time that would otherwise be spent by deciding between prices and transportation; that is, time that could also be used to build a track record or organizing her other tasks.

The loans get bigger as you keep paying, and that increases the amount of stock available. Kenyan traders praise the speed of the technology due to the need for speed in the world of an informal economy, a world where competition is fierce.

Bringing A Formerly Unavailable Help

Banks, even in the biggest economy of East Africa, are reluctant to lend to small businesses due to an inability to measure the risk of servicing individuals. When they rely on their own judgment, misconceptions are made and millions of small shops don’t have access to the capital they need. The Blockchain is allowing more and more small-business owners to take the loans necessary to kick off their enterprise. The technology is bringing the assistance Kenyan traders have long needed, but couldn’t receive due to the lack of knowledge on behalf of the banks. Smaller businesses run into trouble when trying to obtain credit, and that’s because they’re seen as a group instead of individuals.

However, through a verifiable record like the Blockchain, you can build your own track record and improve your ability to obtain better terms and funding. Data is continuously being analyzed whenever traders access their phones to manage their orders and funding. That data is used for the creation of spending patterns, credit history, and setting trends for the demand of certain goods and services.

A Technology That Could Make an Informal Market Become a Haven

Between Twiga and IBM, more than 220 loans have been processed during a pilot programme of 8 weeks. All loans were directed towards kiosks dealing with food. The average loan was for 3,000 Shillings (equating $30) and they meant a 30% increase in the size of orders. Consequentially, the profits each trader made also increased by 6%. The interest rates oscillated between 1 and 2% and a timeline of 4 to 8 days. It is possible that the service will extend towards other countries around the region as the next phase of the project progresses.