What you need to know:
“Without having to resort to expensive informal lenders, customers can save more of their money or use it on things that improve their lives, rather than simply servicing debt.
It’s no secret that there’s still a long way to go when it comes to achieving true financial inclusion in Africa. In 2021, 45 percent of people in sub-Saharan Africa didn’t have access to a formal bank account. That doesn’t just make it difficult for them to save effectively, but also to access formal lines of credit.
The thing is, when most people talk about financial exclusion and the proposed solutions to it, they tend to focus on the “big” economic movers that come with financial inclusion. A lot of attention, for example, is given to an affordable homes, vehicle financing, business and education loans.
That’s understandable too as those are all vital tools in helping people advance economically, but financial inclusion can’t be limited to those big-ticket items. It must also cover many of the day-to-day purchases that people in other markets take for granted. We cannot, after all, talk about real financial inclusion if someone can access a business loan but still has to approach informal lenders to pay for their child’s school uniforms and stationery.
It’s why the rise of “buy now, pay later” (BNPL) services in Africa is so important. These services allow people to purchase items and choose to pay for them over a specified period, typically in instalments with low interest rates.
Unlike lay-by offerings, people are allowed to take possession of their goods immediately. While these offerings are most visible online, they’re increasingly common in physical retail spaces too.
While many of us are familiar with BNPL in e-commerce contexts, we knew that launching an e-commerce-only BNPL product would have limited efficacy in an African context. Even in a country as renowned for embracing technology as Kenya, online made up just 4 percent of all retail sales in 2021 (the most recent year for which I could find figures).
But getting physical retailers on board with the concept wasn’t always easy. In the early days especially, there were a lot more no (s) than yes (es). Nonetheless, we persisted because we knew that, implemented correctly, the BNPL solution we were building could be a “lifeline for a lifetime” for both our retailer and customers.
As a result, today, we have a BNPL offering that works as effectively in offline physical retail settings as it does online. And because we’ve taken an attitude that everything about Lipa Later, from the name (Lipa is Swahili for “pay”) to the technology, should be tailored for Africa, we’ve been able to expand beyond Kenya into Uganda and Rwanda.
We also welcome the growing competition in the African BNPL space, not only because it has pushed us to keep improving our own offering (a partnership with Mastercard means that we’ll soon be rolling out the first buy now, pay later card in Africa, for example) but also because it’ll help advance financial inclusion across Africa.
While BNPL can not eliminate debt entirely, it can make a dent in it, and with nearly 60 percent of Kenyans living in debt and similarly high numbers across many countries on the continent, its role will only become increasingly important.
Without having to resort to expensive informal lenders, customers can save more of their money or use it on things that improve their lives, rather than simply servicing debt.
As operators become mature and innovative (rewarding the best-paying customers with even lower interest rates, for example), its value will keep growing. However, consumers aren’t the only ones who benefit from this expanded financial inclusion, retailers also benefit from increased customer bases.
Those increased sales, in turn, can lead to expansion and even contribute to national economic growth. So, as important as more traditional forms of financial inclusion are, it’s important to remember that consumer spending power is a critical component of financial inclusion, too.
Tailored effectively to African realities, there are few more powerful instruments for improving that spending power than BNPL.
Mr Muli is the founder and CEO of Lipa Later.