Pilot Launch | Innovative Buy-Now-Pay-Later products for MSMEs in Kenya

Mercy Corps Ventures launches a new pilot with SympliFi, Kwanza Tukule Foods Limited, UTU, and Kotani Pay, leveraging DeFi to power a Buy-Now-Pay-Later (BNPL) product for MSMEs, such as food vendors, in Nairobi, Kenya.

This post is the first of a two-part series; the second blog will share key insights after the pilot is completed. Written by Hebe Foster, Platform Associate at Mercy Corps Ventures.

The Context

Across Africa, the micro-, small- and medium-sized enterprises (MSMEs) sector is facing a $421 billion funding gap, constraining business growth and consequent livelihood improvements.

To specifically outline the effects of this: as urbanization accelerates, this has a significant impact on the growing informal food vendor population in Nairobi, Kenya, who provide much-needed access to affordable food for low-income neighborhoods. They have traditionally been underserved by logistics and e-commerce fast moving consumer goods (FMCG) startups, as most focus on larger shops and formal restaurants. When asked what their most significant operational challenges were, 73% of Nairobi’s street food vendors cited the high cost of goods from suppliers, and 33% cited lack of access to credit. For these MSMEs, this exclusion from credit is partly due to their lack of collateral and credit history, which rules out many traditional lending options, combined with prohibitively high interest rates on uncollateralized loans which present an affordability challenge. Few lenders in the market offer the short-term products (such as 1, 3, or 7-day loans) required by these MSMEs to reach their full potential. At the same time, Kenyan migrants living overseas often have limited options to support their communities and local businesses back home, made harder by high transfer fees for those who wish to transfer capital.

The Pilot

In July 2022, we partnered with SympliFi, Kwanza Tukule, UTU, and Kotani Pay to launch a DeFi-enabled B2B Buy-Now-Pay-Later (BNPL) pilot. The pilot will test the provision of cheaper and short-term capital to MSMEs in Nairobi (including informal food vendors, micro-retailers, and gig economy drivers), unlocked by tapping into a global liquidity pool on the SympliFi Platform.

SympliFi

SympliFi is a cross-border digital lending platform that facilitates access to affordable credit for MSMEs in emerging markets. Their core model offers migrants in Europe and the US the option to earn 2–4% yields by depositing money on the platform, which family members in their home countries can use as digital collateral to access cheaper credit locally from SympliFi’s bank partners for productive uses.

SympliFi’s model is evolving to also enable individuals and investors to directly lend their capital by creating valuable global liquidity pools that are disbursed to MSMEs in local currency, in this case Kenyan shillings (KES), via embedded local partners, in this case Kwanza Tukule. The solution is enabled by decentralized finance (DeFi), using a blockchain-based USD stablecoin to pool the liquidity, which increases the speed of transactions, and enables cheap and transparent exchanges from the overseas lender capital to receiver loans in the local currency, with interest rates that aim to be significantly lower than other cross-border options in the market (a target APR of ~24–36% vs a market average of ~67%). This borderless lending therefore unlocks fast-moving productive use loans by leveraging the power of stablecoins and APIs to offer cheap, embedded credit to the most underserved MSMEs.

Kwanza Tukule

Kwanza Tukule is a logistics company improving the supply chain for low-income food vendors and micro-retailers in Kenya. Their low-margin logistics service allows these vendors to provide affordable meals to underserved neighborhoods by providing accessible FMCG with reliable same-day delivery through trusted sales agent networks. Eighty percent of the owners of these informal food vendors are women, and Kwanza Tukule’s service directly impacts the vendors’ income, contributing to their longer-term financial health, inclusion, and resilience.

Image courtesy of Kwanza Tukule.

Through the first stage of this pilot, SympliFi will work with Kwanza Tukule Foods to test the provision of accessible BNPL products to 200 informal street food vendors and kiosks in Nairobi, supporting these retailers to increase their sales and/or revenues with short-term line of credit at non-punitive interest rates. This pilot integrates the SympliFi solution with Kwanza Tukule’s offering, providing their network of vendors with a DeFi-enabled BNPL product for flexible payment options to help them better manage their cash flows and buy more goods. Liquidity providers across the world will be able to deposit fiat currency into the SympliFi platform, which is bridged to a USD stablecoin and onwards into Kenyan shillings, withdrawn via Kotani Pay. Vendors are scored by UTU, a blockchain protocol that uses ordering history, demographics and M-Pesa data to build creditworthiness scores. This allows the vendors to obtain an alternative credit score outside of traditional credit bureau processes. Qualified vendors will automatically receive the BNPL offer based on their weekly average order via the existing sales agent network, to use on inventory for their businesses, and will be able to increase their BNPL limit over time by 25–50% based on repayment behavior.

Pilot participant and partner process flow.

At the pilot launch this week, fifteen merchants on the Kwanza Tukule platform, in this case food vendors and kiosk owners, were pre-qualified and received an SMS informing them of their access to the BNPL product.

The fifteen participating vendors have been anticipating this BNPL offer for several weeks and were excited to have access to this form of payment that enabled them to buy their goods on credit. With simple flat fees charged on the product, the vendors were able to quickly take up the offer without concerns around compounding interest.

“It’s a real game-changer”

said Khadija Mohammed-Churchill, CEO of Kwanza Tukule, who has been spending time in market with vendors who have participated in this first round of credit and hearing how different this product was from other offerings on the market.

Over the course of the pilot, we will be testing a range of products and rates to see what suits the vendors’ requirements best. As repayments are made, the original liquidity pool can be re-used to fund new BNPLs, and the pool of participants will gradually be expanded to all 200 vendors. This is a fast-moving payment product and as such trends in repayments and uptake of products will be quickly visible.

Our Hypotheses

The pilot will reduce transaction costs for MSMEs and increase access to flexible payment solutions, enabling growth of revenues and profits. This will be measured by:

  • Transaction fees charged to vendors
  • BNPL amount accessed (and repaid)
  • Increase in income and revenue for MSMEs

The pilot will allow Kwanza Tukule to offer an on-demand BNPL product to its network of vendors, improving their experience of the Kwanza Tukule products and increasing transactions. This will be measured by:

  • Increase in vendor transactions pre- and post-BNPL
  • Amount of transactions through the Kwanza Tukule platform
  • Qualitative user satisfaction metrics

The pilot will create yield-generating opportunities for liquidity providers seeking investment opportunities in developing countries. This will be measured by:

  • Total value locked (TVL) in SympliFi liquidity pools
  • Amount of extra liquidity returned to the initial deposit pool in the form of fees on BNPL products
  • Yield repaid to SympliFi customers

Learning Questions

  1. 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?
  2. How do embedded finance products support the growth of digital app platforms (eg. Kwanza Tukule)?
  3. How do stablecoins reduce cost and increase yields for all stakeholders (liquidity providers, SympliFi, aggregators, borrowers)?

By providing access to previously hard-to-access financial products, such as BNPL, we’re testing a new way to fill the funding gap for MSMEs in emerging markets, allowing them to grow their businesses and power the economies of the communities they live in. This pilot aims to illustrate an important use case for DeFi-enabled global liquidity pools, showing how cheaper access to globally collateralized credit can provide value-add for MSMEs looking to grow their income and purchasing power, as well as for individuals and communities living outside of their home country looking for better options to give back and earn yield. Scaling this pilot could significantly contribute to building the resilience of MSMEs in emerging markets, as well as proving out the ability of affordable access to capital to drive inclusivity in the financial system.

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

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