Case Study: How data-driven short-term loans to informal merchants can drive financial inclusion

Nomanini pilot project proves banks can offer loans at standard interest rates, but in a format that meets needs of informal merchants.

In sub-Saharan Africa, the informal retail sector currently makes up a staggering 38% of GDP. For banks and other financial sector players, this is a number that simply cannot be ignored – particularly when one considers that informal merchants continue to face huge barriers to growth.

“Chief among these barriers is the fact that the unique financial needs of informal merchants are not being met by the existing loans products in the market,” explains Vahid Monadjem, CEO of Nomanini, a South African-based enterprise payments platform provider that optimises transactions in the informal retail sector.

With this challenge in mind, Nomanini partnered with FIBR, a programme of BFA in partnership with Mastercard Foundation, to undertake a pilot project to identify the key pain points in the informal retail sector - and to develop a successful solution.

Current Financial Mismatch

“The findings from our pilot project indicate that access to working capital is one of the most significant barriers to growth in the informal retail sector today,” notes Monadjem. “This lack of access translates into formidable challenges on the ground, the nature of which formal merchants simply should not have to deal with.”

For instance, when smaller, informal merchants run out of stock of virtual items such as airtime, and do not have access to a liquidity bridge in the form of electronic cash, they are forced to turn customers away, resulting in significant income loss. In addition, without access to working capital, merchants are not able to diversify their business through the initial purchase of new stock items which often require sizable orders to access better prices.

According to Monadjem, the loans currently available to informal merchants fall well short of meeting their needs for four key reasons.

Firstly, data on informal merchants is scarce, making credit scoring difficult and loans more risky. Secondly, lenders require collateral for the loan provided – something that merchants in the informal market cannot provide. In addition, existing fee structures that calculate interest per annum are overly complex, thereby discouraging merchants from exploring further solutions. Lastly, loan terms are too long with loan values that are very high, resulting in unmanageable repayments.

“Typically, informal merchants need a small loan such as $10-$100 for a day or a week, rather than $1000 for 3 months,” Monadjem explains.

A business case for financial inclusion

In addressing this challenge, the Nomanini pilot project underscored the importance of well-structured partnerships. While banks may not be in a position to restructure their existing loans products completely, partnering with the right financial technology company can provide access to this valuable market segment without needing to do so.

“Arguably, the true strength in a partnership lies in enabling banks to lend to informal merchants safely, with the same value as traditional loans, as well as in a format that these customers value and accept,” says Monadjem.

He notes that Nomanini’s existing relationship with informal merchants enabled them to successfully offer collateral-free loans, while still achieving a default rate of only 1.5%. Moreover, merchant activity rates rose by 30% during the pilot. Notably, merchant enthusiasm and participation allowed the company to turn the loan book four times in three months, allowing Nomanini to use a small capital investment to provide significant value.

“In short, we were able to offer loans at the same interest rate as banks, but in a format that met the needs of informal merchants,” concludes Monadjem. “Looking ahead, there is clearly a strong business case for future partnerships between banks and financial technology businesses.”


About Nomanini

As the pioneering fintech platform for the informal retail ecosystem, Nomanini connects merchants and distributors to each other and global service providers, integrating payments, working capital, and data analytics to unlock the latent potential of Africa’s economy.

Nomanini turns any mobile device into a retail point-of-sale solution for informal merchants that is connected to an interoperable merchant wallet. The interoperable merchant wallet allows merchants to offer a broad range of digital banking (including cash-in/cash-out), mobile, utility and entertainment services to their customers boosting competitiveness. In turn, digital service providers rapidly increase the scale and reach of their offerings. By generating real-time insights based on transaction data, distributors using the platform gain a single view of their merchant network, ensuring inventory is where it is needed most to improve sales. Distributors can also begin to accept payments for goods electronically, eliminating the risk and inefficiency of collecting cash. With data analytics, Nomanini helps extend working capital loans to merchants via distributors allowing them to invest in inventory to grow their businesses. The increased volume of goods and services set against reduced operational friction increases the profits for all platform participants.

Nomanini was founded in 2010 and is headquartered in South Africa.

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