By Eric Muli, Founder and CEO, Lipa Later
It is no secret that there is still a long way to go to achieve true financial inclusion in Africa. As soon as 2021, 45% of people in sub-Saharan Africa did not have access to an official bank account.
This not only makes 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 proposed solutions to it, they tend to focus on the “big” economic factors that come with financial inclusion.
A lot of attention, for example, is given to affordable home and vehicle financing and business and education loans. It’s also understandable: these are all vital tools to help people get ahead financially.
But financial inclusion cannot be limited to these big 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 has to turn to informal lenders to pay for their child’s school uniforms and stationery.
This is why the rise of buy now pay later (BNPL) services in Africa is so important. These services allow people to buy items and choose to pay for them over a set period, usually in installments with low interest rates.
Even in a country as renowned for its adoption of technology as Kenya, the internet make up only 4% of all retail sales in 2021
Unlike simple offers, people are allowed to take possession of their goods immediately. While these promotions are most visible online, they are increasingly common in physical retail spaces as well.
A personal journey
There are many examples of how BNPL can empower ordinary Africans by enhancing their purchasing power. Maybe it’s someone who needs to buy a new suit for a job interview, a promising athlete who needs a new pair of running spikes as they look to secure a college scholarship, or someone who needs to buy a laptop to start their hustle .
Sometimes (as I discovered myself when I returned to Kenya in 2017 after studying in the US), it’s just about staying connected. As I trawled the malls of Nairobi looking to buy a phone (something few of us can live without), I realized that very few stores had the option to pay off a device in installments. This is in stark contrast to the US, where installment plans are available almost everywhere.
But it was also a moment that inspired the founding of Lipa Later. I realized how effective BNPL could be in Kenya and the wider African context, particularly if it was tailored to the way Africans shop.
While BNPL cannot completely eliminate debt, it can make a dent in it, and with almost 60% of Kenyans live in debt and in equally high numbers in many countries of the continent, its role will become increasingly important.
This vision was further crystallized in the early days of the business when my co-founder Michael Maina he spent hours walking the malls, talking to shoppers. Many, he found, wanted a particular phone that was out of reach but could easily be paid off in a few months.
BNPL for mostly offline shopping
While many of us are familiar with BNPL in e-commerce environments, we knew that launching an e-commerce-only BNPL product would have limited effectiveness in an African context. Even in a country as renowned for its adoption of technology as Kenya, the internet make up just 4% of all retail sales in 2021 (the most recent year I could find data for).
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But getting brick-and-mortar retailers on board with the idea hasn’t always been easy. Especially in the early days, there were far more no’s than yes’s. However, we persisted because we knew that if implemented correctly, the BNPL solution we were building could be a ‘lifesaver’ for both retail and consumer customers.
As a result, today, we have a BNPL offering that works as effectively in physical offline retail settings as it does online. And because we’ve adopted the attitude that everything about Lipa Later, from the name (Lipa is Swahili for “payment”) to the technology, must be tailored to Africa, we’ve been able to expand beyond Kenya to Uganda and Rwanda.
We also welcome the growing competition in the African BNPL space, not only because it has pushed us to continue to improve our own offering (a partnership with Mastercard means we will soon be launching the first buy now, pay later card in Africa, for example); but also because it will help promote financial inclusion across Africa.
While BNPL cannot completely eliminate debt, it can make a dent in it, and with almost 60% of Kenyans live in debt and in equally high numbers in many countries of the continent, its role will become increasingly important.
Without having to resort to expensive informal lenders, clients can save more of their money or use it for things that improve their lives, rather than just servicing debt. As operators mature and innovate (rewarding better-paying customers with even lower rates, for example), its value will continue to grow
But consumers aren’t the only ones benefiting from this expanded financial inclusion. Retailers also benefit from the increased customer base. These increased sales, in turn, can lead to expansion and even contribute to national economic growth.
Therefore, as important as the more traditional forms of financial inclusion are, it is important to remember that consumer power is also a critical element of financial inclusion. Adapted effectively to African realities, there are few more powerful means of enhancing this consumer power than BNPL.
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