🏍️ Digital-driven asset financing can turn workers into micro-enterprises

Digital platforms can be powerful connectors of supply and demand for services and work.

There is often a fine line between gig work, where individual service providers are beholden to the terms and algorithmic management set by the platform, and microentrepreneurship, where providers are more autonomous and can use platforms as one market access channel among several others.

We discuss asset-financing models by startups like Asaak and Moove as one promising pathway to allow platform-based service providers to gain more economic independence.

Putting riders in charge

The platform economy has been both hailed as a groundbreaking force for employment creation and criticized as a harbinger of deeper digital inequality. Upon closer look, the specific impact on livelihoods often depend on the barriers that service providers and workers face as they enter and navigate platform markets, and on the available alternatives.

Enter digital-driven asset-financing. Most individual riders and drivers operating through mobility platforms, for example, lease or rent their vehicles, either directly from platform companies or from partners.

This can lead to dependence and debt traps: when a car or a bike is rented or leased, drivers often have to stick with the original terms and continue providing services through the given platforms that operate in the local market, even where platforms’ changing pricing and matching algorithms offer worse conditions over time.

The alternative — impact-oriented asset-financing — seeks to instead provide more favorable terms for loans and leases, providing digital credit based on conditions that are connected to drivers’ and riders’ behavior, traced through platform data.

As service providers prove themselves, they pay off loans and gain ownership of their vehicle. Ultimately, bikes and cars can be used across competing platforms as well as for off-platform business and personal purposes, increasing riders’ flexibility and income opportunities.

Investments and partnerships

While the concept of data-driven asset-financing is appealing, the specifics can be hard to figure out. Platforms control data about drivers’ behavior, and it is not always in the apps’ interest for them to become more independent. Digital data can also be fragmented, with digital credit providers and competing platforms building up separate databases.

This is why fintech intermediaries that focus on digital credit for the purposes of asset-financing, like Asaak in Uganda, are gaining in traction and investment. The company recently secured $30 million of equity and debt financing from a set of venture capital and impact investors. Asaak provides loans of about $1,500 at interest rates between 1 to 4% to bodaboda (motorcycle) riders, determining the loan decision and terms based on a proprietary credit score.

The score is informed by borrowers’ platform-based earnings, trips, and customer ratings, with this data being aggregated from multiple mobility platforms including Bolt, Jumia, Safeboda, and Uber. Asaak makes loan decisions within three days of sign-up. It also offers physical branches, which is important for many riders who do not have access to high-quality smartphones or who prefer talking to a person face-to-face for a big financial decision.

Asaak is not just an intermediary for platforms, but also for financing and technology providers: it has partnered with Standard Bank to embed the bank’s digital credit product and with Samsung to provide subsidized smartphones to riders and drivers.

The economic development potential of asset-financing was also evident last year when the International Finance Corporation (IFC) invested in the Nigerian fintech Moove.

Under a public-private co-financing facility, IFC matched $10 million of risk financing from a set of private investment companies. Like Asaak, Moove is a vehicle-financing provider working in partnership with platforms, in this case mostly with Uber.

The new funding is dedicated to the expansion of Moove’s fleet, including the build-up of a pilot hybrid vehicle fleet in Lagos. The rationale is that the investment could be a win-win-win: platforms address the bottleneck driver and vehicle availability in cities like Lagos, drivers can obtain ownership of cars, and cities benefit from old vehicles being replaced over time, reducing pollution and fuel usage.

Neutral arbiters of inclusive growth?

As the platform economy matures, intermediaries like Asaak and Moove will grow in importance. Such third parties can aggregate data and be a neutral broker for a competitive platform economy, and thereby, they can also become contributors to inclusive growth.

Proprietary platforms rarely have strong enough incentives to onboard digitally excluded service providers, and development finance may be hesitant to invest in any particular platform.

Financing intermediaries may seek to grow the pie rather than take the biggest slice. Small business supporters should remain alert to the specific conditions and impacts that asset-financing and similar financial intermediaries are creating for platform-based livelihoods.