In Kawangware, an informal settlement in Nairobi, Edi Mbaiga oversees a small shop, no bigger than two square meters, which she took over from her father around seven years ago. She keeps it stocked with everything from fruits, vegetables, flour, and dried fish to soap and laundry detergent. Business was consistent, but Mbaiga wanted to expand the shop. To do that, she’d need a loan, which, for a shop run entirely on an analog, cash-based system, was next to impossible to secure.
A new digital platform for micromerchants–retailers that transact generally in very small sums and, because they mostly use cash, are excluded from form economies–in Nairobi is helping her to secure the extra funds to grow the shop. Called Kionect (a mashup between “kiosk” and “connect”), and launched by Mastercard and a handful of on-the-ground partners in Kenya, the platform enables merchants to place and pay for an order from a partner wholesaler, Kaskazi, via text–either an SMS from a feature phone or a message from a smartphone will work. Kaskazi acts as something of a wholesale aggregator from the region, sourcing products from various large retailers and delivering them on-demand to merchants. An East African financial institution, Diamond Trust Bank, facilitates mobile payments between the shop owners and Kaskazi, and all of the transactions are recorded and managed on the Kionect platform. The digital trail that builds up over a series of placed orders and payments equips the merchants with a credit history they can use to secure business loans from Musoni, a Kenyan microfinance provider.
Kionect is one of the latest examples in a series of innovative approaches to establishing alternative measures of creditworthiness for people in the developing world, where cash still dominates. A Tanzania-based startup called First Access, for instance, uses mobile phone payment histories to build out credit scores. Around one month into its pilot program, Kionect has reached 1,100 small merchants in Nairobi. The initiative began, says Michael Elliot, vice president of Mastercard Labs for Financial Inclusion in Nairobi, with spending time with shop owners to get an understanding of their needs.
“These microretailers struggle to buy the supplies for their shops, and they struggle with the logistics of it,” Elliot says. Restocking a store could mean having to close up shop for an hour and a half to trek to the wholesaler and bring the wares back, he adds. Mastercard selected Kaskazi as its wholesale partner for Kionect because it employs a network of delivery motorcyclists to bring the wares directly to shops. Each of the participating shops is geo-tagged on the platform and labeled with an identifying barcode, so delivery agents know where to bring the wares. “The whole point of Kionect is to understand the pain points of the merchants, and make it easier for them to do their jobs,” Elliot says.
For the time being, it’s free for both merchants and wholesalers to use Kionect–the Mastercard Lab for Financial Inclusion in Kenya, in 2014, received a $19 million grant from the Gates Foundation to develop and distribute products, like Kionect, designed to help merchants into the mainstream economy. Ultimately, the platform will roll out as a commercial product which merchants and wholesalers will pay a fee to use.
Currently, the service is helping merchants not only to restock their stores more easily and establish a financial track record; it’s also helping them budget and plan for new orders in advance. Kaka, another merchant who also runs a shop in Kawangware, would, in the past, take an inventory of his store to determine what he needed–say, 10 packs of Nescafe and a kilo of rice. But he wouldn’t find out how much it cost until he ventured to the wholesaler to pick it up because the prices tend to vary from wholesaler to wholesaler. On Kionect, he can price and pay for the orders in advance through its relationship with Kaskazi, which collects the order and totals the cost in advance of delivering it. For Kaka, the streamlined method helps him budget and plan for restocking more accurately.
In the pilot phase, Kionect still presents some limitations for its users, chief among them being that the creditworthiness the merchants build up through the platform can only be used to apply for loans directly related to their businesses–either physical expansion, or diversification of product offerings. It’s Mastercard’s hope, though, Elliot says, that the financial history the merchants accrue on Kionect could eventually translate into loans to help finance other areas of their lives, including homes and education. “We want to see this start to evolve into a relationship between merchants and banks that can grow beyond just the Kionect loan,” Elliot says.