Pilot Insights | Buy-Now-Pay-Later Products Driving Financial Inclusion For MSMEs In Kenya

In 2022, we launched a pilot with SympliFi, Kwanza Tukule, UTU, and Kotani Pay, leveraging decentralized finance (DeFi) to power a Buy-Now-Pay-Later (BNPL) product for small businesses, such as food vendors, in Nairobi, Kenya.

Pilot Insights (read our full insights here)

• Access: For 77% of food vendors, this was the first time they had used a credit product or similar inventory financing product
• Cost: This product was “fairly” or “cheaply” priced compared to alternatives on the market, thus was the preferred choice for 83% of vendors for affordability
• Product preference: The BNPL product met a high need for credit among MSMEs — 80% of vendors exclusively used it as their preferred form of financing while only 19% opt to complement it with other credit products available in the market.
• Business growth: 78% of vendors have seen business expansion, attributing this to an increase in purchasing power
• Wellbeing: 63% of vendors had reduced stress levels, citing the ability to get stock even when cash is short while still having time to repay

This post is the second of a three-part series. The first blog outlined the pilot launch and our learning questions. This blog shares insights from the first phase of the pilot. The final blog will answer our broader learning questions about the value of Web3 in this use case.

Written by Hebe Foster, Platform Associate and Pilot Manager.

Image courtesy of Kwanza Tukule.

In July, we launched a pilot with SympliFi, Kwanza Tukule, UTU, and Kotani Pay, leveraging decentralized finance (DeFi) to power a Buy-Now-Pay-Later (BNPL) product for micro, small, and medium-sized enterprises (MSMEs), specifically for food vendors, in Nairobi, Kenya. This first phase of the pilot sought to explore how alternative lending models can improve access to capital for MSMEs serving low-income consumers, offering 1 and 7-day financing options.

“BNPL is the only product that I have seen that would benefit my business because I get credit on goods purchased, instead of money only.”
Pilot Participant | Nairobi, Kenya

For the growing informal food vendor population in Nairobi, Kenya, the combination of high cost of goods and poor access to financing is a major barrier to improving livelihoods and family income. However, innovative financial products designed for MSMEs can drive financial resilience and business growth.

“My business is growing and there is a sense of stability.”

Pilot Participant | Nairobi, Kenya

SympliFi’s platform leverages DeFi to provide cheap, embedded inventory financing to vendors, using a blockchain-based USD stablecoin to pool liquidity, increase the speed of exchanges, and reduce the overall cost of transactions. This DeFi-enabled credit is then off-ramped via Kotani Pay and disbursed in Kenyan shillings to Kwanza Tukule, a logistics company servicing low-income food vendors in Kenya, to fulfill the payments on behalf of vendors placing their orders.

“When clients buy products from me at a credit, I will not have enough money to buy more products until my clients pay me back. I then decide to use the BNPL product.”

Pilot Participant | Nairobi, Kenya

Normally, vendors fill their working capital needs through short-term loans that are prohibitively expensive for vendors. Through SympliFi’s Web3-enabled solution, the BNPL product is available on-demand to vendors for a flat transaction fee that targets a 36–48% APR, which is up to 50% cheaper than traditional digital loan products, based on our research (note that this product is not directly comparable to digital loans, but is a tailored inventory financing option that better suits vendor needs).

Pilot Insights

Of the 141 food vendors we surveyed for the 6-month first phase of the pilot*, 94% had used the product on multiple occasions, for an average of 18 weeks. Six percent of those interviewed had not used the product and are referred to as “non-users” throughout the rest of this analysis.

Those using the BNPL product largely used it when they had insufficient cash to pay for required stock. This often occurred when their customers purchased goods or food on credit, leaving the vendors short of cash to pay suppliers. Vendors were particularly keen on using this product for a few reasons, including cheap fees, easy accessibility and repayment via Kwanza Tukule, reliability, and the fact that it is designed to be used exclusively for stock. Forty-eight percent of the BNPL users preferred the 1-day product since it provided the opportunity to delay supplier payment slightly but without higher fees. On the other hand, 38% preferred the 7-day product as it gave them more time to sell and replenish their stock.

Pilot Learnings

Here, we outline some answers to the first learning question in the launch blog:

How can alternative lending models reduce cost and improve accessibility to productive use capital? What benefits are unlocked for MSMEs through access to affordable capital?

Cost and accessibility

From a vendor perspective, the cost and accessibility of this product were better than alternatives on the market.

• 77% of food vendors had not used a credit product or similar inventory financing product before. Reasons for uptake now included vendors becoming aware of BNPL as an option and lower costs compared to other products. Furthermore, this product is embedded into the stock ordering process, making it very easy to use for inventory management.
• 83% preferred this product on the basis of affordability, saying that they believe this product is “fairly” or “cheaply” priced compared to alternatives on the market.
• 84% reported that the repayment process was smooth, partly due to the interoperability with M-Pesa (the digital banking system which is hugely popular in Kenya, and which many vendors use to pay their bills and BNPL instead of cash and bank transfer).
• Of those vendors using this kind of product for the first time, 46% found the process easy. This may be due to the disbursement partner, Kwanza Tukule, as vendors were already using their platform and network of sales agents, which built trust and made for a smoother transition into using the BNPL product.

“[Other products] have always been expensive and with lower limits [on the amount of credit available].”

Pilot Participant | Nairobi, Kenya

Micro-finance institutions and digital lenders in Kenya charge an average of ~67% APR, with local loan providers sometimes charging as high as 200% (0.6% daily). By contrast, SympliFi’s use of USDC stablecoin and a transaction-based model allows vendors to pay a flat and transparent fee of 30 KES and provides them flexibility to use the product on-demand as needed.

“The BNPL product is very affordable and I get to make a profit after selling the products.”

Pilot Participant | Nairobi, Kenya

Images courtesy of Kwanza Tukule

Business benefits

Access to the BNPL product had a positive impact on most vendors’ businesses.

• 78% of vendors have seen business expansion, attributing this to an increase in purchasing power, which allows vendors to retain customers and keep their businesses operational through challenging times.
• 20% used their increased purchasing power to diversify their product range, which can increase the basket size of existing customers or attract new ones.
• 80% exclusively used BNPL as their preferred form of financing, showing that the introduction of this product met a high need for credit among MSMEs.
• 28% of vendors who only used the product once stopped using the product because they then had enough capital to stock their business using cash.

“It has made me believe in my business and have targets for the future.”

Pilot Participant | Nairobi, Kenya

Personal life benefits

Many vendors experienced benefits in their personal life and with their families through access to the BNPL product.

• 63% of vendors reported reduced stress levels, citing the ability to get stock even when cash is short but still having time to repay.
• 69% reported improved outcomes for their households, ranging from generally increased income to the ability to pay for school fees and emergency costs.

Gender and risk appetite

We found a gender difference in usage of the product. Primarily, we found that:

• 66% of female vendors had an overwhelming preference for the 1-day lending product over the 7-day product (66% vs 30%), while male vendors had the opposite behavior (26% vs 52%).
• 16% of female vendors reported using the BNPL product to diversify their product range, compared to 41% of male vendors.
• 5% of female vendors used cash (not BNPL) for some of their purchases, far fewer than the 22% of male vendors who used cash for some transactions.

Overall, these behavioral differences could reflect a lower risk appetite among the female vendors who chose to use BNPL. Taking a shorter-term product and keeping stock the same is less risky than the alternatives. Another hypothesis is that female vendors might be more likely to allow their customers to purchase on credit, so they are more in need of day-to-day loans depending on whether their customers have paid. Nonetheless, the vast majority of female vendors did opt to use the product, perhaps indicating a preference for the specific business planning and payment management that BNPL offers.

Next Steps

The first phase of the pilot was carried out with Kwanza Tukule, whose vendors will continue to use this BNPL product going forward. We are excited by the results of this pilot to date, leveraging DeFi to facilitate affordable access to life-changing capital for MSMEs. Explore the full results of this survey here.

This pilot involves a second phase of testing with another disbursement partner — MarketForce, a digital commerce marketplace serving small retailers in Rwanda.

The second phase will explore both a BNPL product for retailers, similar to Kwanza Tukule’s offering and a wholesale inventory financing offering for MarketForce themselves. We are monitoring this pilot on an ongoing basis and will be sharing insights from this partner in a blog post towards the end of August, focusing particularly on the web3 element of the product and how its features enable these positively impactful low-cost, accessible products to be rolled out.

*This phase of the pilot was conducted with 250 participants. 141 were surveyed (56% of the total group)

Stay tuned for updates, evidence, and insights on our other Mercy Corps Ventures pilots, responsibly testing Web3 solutions for unbanked and underbanked populations in emerging markets.