25 April 2018

    Tom Jackson

    #FutureMoney: Formalising Africa's informal markets

    Think you know what Africa’s biggest business is? Think again. For the humble spaza shop holds the crown.

    Think you know what Africa’s biggest business is? Think again. For the humble spaza shop holds the crown.

    Africa’s informal economy is, believe it or not, big business, accounting for an average 41 per cent of GDP across the continent, and accounting for 72 per cent of total employment. Yet the 'informality' of such businesses poses them problems. They mostly sell only physical goods, cannot track their customers, and are barred from using formal financial services.

    Until now, that is. One of the companies tackling this problem is South Africa’s Nomanini, which provides informal merchants with a point of sale device that allows them to  sell 'digital goods' like airtime and prepaid electricity. With an in-built management system tracking sales, Nomanini can use this data to connect them to providers of services like loans.

    'Informal retail merchants want to provide a full range of mobile value-added services and financial services to earn incremental income and to attract consumers,' says CEO Vahid Monadjem.

    Nomanini provides them with a fast, easy solution to do just that, handling a range of transactions from a single wallet to allow merchants to focus on their core retail business. The impact is huge, with the company’s informal merchants, mostly based in Kenya, Mozambique and Zambia, seeing sales increase by up to 40 per cent.

    Accessing the unbanked

    Africa’s informal sector goes far beyond just merchants, however. Unbanked individuals want to send and save money, and pay bills. Another South Africa-based firm, Zoona, is addressing this level, while also allowing small businesses to pay their staff.

    'When we started the business there were two issues we were looking to address: high unemployment, and low financial services adoption,' says co-founder Brad Magrath.

    'And the levers we felt we could best tackle these with were through technology and entrepreneurship.'

    Zoona, which is active mostly in Zambia and Malawi, provides these services via 3 000 agents - or 'entrepreneurs' - who have been able to start their own businesses by offering money transfer and savings services in their communities.

    'The entrepreneurs Zoona works with are a critical part of our overall customer value proposition,' says Magrath.

    'We have been very deliberate around how we can co-create solutions that empower them to best serve our consumers.'

    Magrath says Zoona agents have earned more than US$40 million in commissions from selling its products since the company launched, and believes the success has come from its partnerships with people in the local communities.

    'Some companies have products and services that have traction in other areas and they try and parachute them into this space and then are not able to learn and pivot and adapt to the unique opportunities and challenges,' he said.

    The likes of Nomanini and Zoona have found effective ways, through technology and local partners, of reaching underserved markets that banks and telecoms have often struggled to serve. Now, Nomanini is partnering with these service providers to help them access the vast opportunities of the informal market.

    'Telcos and banks tend to view informal merchants as a channel while focusing on end-consumer products. Consequently, they do not spend enough time designing solutions for merchants as significant users in their own right,' Monadjem says. 'That’s what Nomanini does: we reverse the approach and design for informal merchants as our primary user.'

    Tom Jackson