The data from World Bank’s private lending subsidiary, International Finance Corp., small and medium enterprises (SMEs) in Africa face a lending deficit of US$ 331. This figure could be bigger if the group is expanded to include micro-enterprises.

Twiga staff and delivery vehicle

According to the Nairobi-based lender, 4G Capital, the demand for loans in the micro SMEs (MSMEs ) market in Kenya alone is a staggering US$ 6.5 billion annually.

“Sub-Saharan Africa has some way to go in building the financial infrastructure needed for MSMEs,” 4G Chief Executive Officer Wayne Hennessy-Barrett told Bloomberg.

The lender provides loans to small companies and startups in Kenya and Uganda. Over the next financial year, beginning July 1, the company expects to lend US$40 million the MSMEs, that is twice as much as the amount it lent out last year.

Twiga staff picking produce from farmers

Informal sector traders in Africa have had a difficulty in accessing credit because it is difficult for banks to ascertain their creditworthiness. While this data is out there, it is has been difficult for banks to mine it and use it to derive credit scores. However, if the latest innovation by the Kenyan startup Twiga Foods Ltd is anything to go by, all these could change for the better.

Twiga app, developed by International Business Machines (IBM) Corp., allows small-scale greengrocers, commonly known in Kenya as Mama Mboga, to access loans to buy groceries directly from producers, and have them delivered to their stores by Twiga Foods. It is not only convenient but also cut transport expense while helping them build a credit track record.

Twiga earns its income by buying fresh produce from farmers and selling it to retailers. The app utilizes the blockchain technology to maintain its customers’ credit history.

Development economists have often alluded that the success of any business in Africa lies in its ability to penetrate the informal sector. This is why Equity Bank, Kenya’s largest bank by market capitalization, and Safaricom, Sub Saharan most profitable telcos, have done. They had a strategy for unbanked population, largely composed of the informal sector players.

With this app, Mama Mboga gets her orders and funding needs on her phone. The moment she makes her orders, the data is submitted for analysis. The data accumulates as she continues using the app. This information, if analyzed, can be used to create her spending patterns, demand for goods and services, and generate her credit history.

During the 8-week pilot program, Twiga backed by IBM, processed more than 220 loans for Mama Mbogas. The loans averaged at about Kshs. 3,000(US$30) each. Over the period, the retailer’s orders swelled by 30% and their profit margin increased by 6%. The duration of the loans ranged from four to eight days with interest rate between 1% to 2%.

The app is an attempt by IBM to address the lack of credit, which has been cited as one of the major hindrances of economic growth in Africa. It will be rolled out in other countries in the next face of the pilot program.