Under the Fierce Sun: Digitising the Informal Economy

North African market - digitising the informal economy

Walking down a street in Nairobi you might notice pop-up café’s, fruit sellers and stalls selling pots, frying pans and stoves. In Kenya this is referred to Jua Kali, a Swahili phrase that translates as ‘fierce sun’ and describes the thousands of roadside manufacturing shops, artisans and traders who produce customisable products on demand. The contrast between the roadside stalls and the glossy skyscrapers that continue to rise is stark, but the informal economy still remains an extremely important part of the ecosystem. The Kenyan National Bureau of Statistics estimates that the informal sector contributes 34.4% of GDP for Kenya, and employs 83.4% of the population. Approximately 60% of whom are aged between 18-35 years old.

A common trend across much of Sub-Saharan Africa is a large informal economy that employs micro-business owners who operate and trade under the radar of government and policy makers. Employment in this sector is described as vulnerable; seasonal agricultural workers, produce sellers and street hawkers. Generally, the businesses provide employment for only one person and struggle to grow and create additional salaried positions. However, they provide a vital source of income to a large percentage of the population and have huge potential given the right conditions. For technology entrepreneurs the informal sector is a huge untapped resource. The high adoption rate of mobile and digital technology provides a platform to network micro-businesses owners together to build dynamic enterprises that have the potential to solve some of the present socio-economic challenges. To a casual observer the informal sector could be viewed as a chaotic and disparate; it is in fact highly connected, with complex supply chains, containing markets within markets based on systems of trust between buyers and sellers. Building a technology infrastructure that works alongside these markets could be naturally complex, but with such a large userbase the potential is huge.


The informal economy can be seen as an archetype of the free market, unimpeded by regulations and government interference it has allowed a huge number of people to find employment, and has acted as a safety net for the households where there is low employment. However, by operating outside of the view of government it is difficult for authorities to collect tax and reinvest this income where needed. The impact is often felt by entrepreneurs who find it easy to start an enterprise but then run into difficulties sourcing effective supplies of credit or finance.

The African Development Bank estimates that the economies of the East Africa region have been growing in excess of 5% per year. One might question if the growth in salaried employment would be reflected by a reduction in the size of the informal sector. However, research has shown that in Sub-Saharan Africa the informal economy has continued to be persistent, changing slowly over time. It is thought that one reason for this is simply that jobs are not being created quickly enough to meet demand.


The 2017 African Economic Outlook cites the biggest inhibitors to growth for entrepreneurs is skills training, infrastructure and finance. Even getting access to the seed funding required to test a new idea can prove challenging. Traditional finance institutes have generally steered clear of the informal sector because they perceive the businesses as being too risky to offer credit. A typical technology start-up might well have been in operation between 0-3 years and many close after only a year. Some banks tried offering loans but the number of defaulters meant that this was not cost effective. In Kenya, the Government has tried to protect consumers by capping interest rates on loans at 14% which has killed off any interest from commercial banks in lending to micro-enterprises.

To a certain extent the funding gap has been partially filled by savings cooperatives, community banks, and government schemes such as the Youth Fund in Kenya. Many young technology entrepreneurs find that the demonstrating the value of what they do to a smaller lender is very difficult, this could be in part due to a cultural trend amongst lenders who would prefer to invest in something tangible rather than technology.

According to the African Development Banks Economic Outlook only 7% of small businesses in sub-Saharan Africa were financed by a formal financial institution such as a Bank, and to meet the demand created by the volume of micro, small and medium-sized enterprises means that credit providers will have to increase their lending by US$135 billion. While lenders are unlikely to meet this shortfall anytime soon, some entrepreneurs have seen this as an opportunity to provide more meaningful products to the market.

M-Funding, a Congolese crowd funding platform has shown that there is huge demand for alternative forms of finance. Their founder, Legrande Koko, started the business after watching a number of his enterprises struggle whilst searching for funding. His crowd-funding site provides a platform for artists, small-holders and local entrepreneurs to meet investors. While the crowd-funding model is not new, it is amongst the first to be built specifically for the African market. One of the major challenges they have found in rolling-out their model is that often this is the first opportunity their users have encountered different financial products. Their role, is not only to provide a platform to access funding, but also to educate, provide context and vital information needed so that business owners are able to make informed decisions about how to grow their business effectively.


Finding the optimal model to engage with the informal sector is a critical for entrepreneurs wishing to grow and scale businesses into the mass market. Mangwee is a Zambian start-up with a vision to create a safe and secure payment system for those excluded from the formal banking system. The team understand first-hand the difficulties experienced by Zambians who do not have access to formal financial services; from their head office in Lusaka they have listened to customers who are frustrated by a lack of viable means to grow their savings, apply for a loan when money becomes tight, or even to pay for bills in a simple uncomplicated way. Despite 60% of the world’s digital wallets being found in Africa, in many parts of the continent cash still remains the main source of payment for many goods and services.

Think about the last time you had to send money to a friend or family member, with a bank account this transaction could be as simple as walking into a branch, dialling a customer help line or even clicking a button on a smart phone app. In Zambia an all too familiar challenge is how to send money to friends or family safely and securely. Sending cash often requires putting your cash onto a bus or giving it to a relative and hoping for the best, but this frequently results in the money being lost or stolen. Mangwee’s aim is to create a simple mobile wallet and web platform that enables these transactions to be safe and seamless.

Co-founder Kampamba Bwalya cites three main reasons that customers have been excluded from financial services in Zambia. The first is perception issue; many potential customers perceive banks to be too polished which they find off-putting. Customers have also been made to feel exploited by the high price of the traditional banking sector and the regular charges on savings accounts mean that for many their savings actually decrease over time rather than grow. Finally, there are challenges with the infrastructure and the large distances those in rural communities need to travel to complete transactions. For example, those working in farming and agriculture need to travel to market for several weeks a year so they can sell and deliver their produce; making additional trips to the bank may well add further time away from the farm which they are not able to justify.

The team explain, “In Zambia we have a saying that development follows the rail”. The Mangwee team understand that the railway, which runs from the tourist town of Livingstone in the south to the copper belt in the north, is a focus for spending. Expenditure on infrastructure and development is focussed in the 500km radius of the railway line, with the rest of the country feeling comparatively forgotten. While this has created sustainable employment for many, those that live in communities further from the railway lag behind in terms of employment opportunities.

Their solution has been to develop a mobile wallet to enable customers to store and transfer funds in a safe and affordable way. To overcome challenges associated with the local infrastructure they are trialling an agent model helping to create meaningful employment in rural communities. Consumers are used to using booths and umbrella stands across the country, often located near busy market places and roads, to purchase airtime for the mobile phones; the team at Mangwee have shown that consumers are just as willing to use similar booths to transfer money home, as it is based on the same mobile technology.

During the roll-out the Mangwee team worked closely with Zambian farming community. They noticed that farmers sometimes struggled to purchase the necessary inputs to meet the demand of their buyers. Mangwee worked with the community to help develop a system of loans specifically for farmers which will be accessible through their platform in partnership with a loan providing firm. This model uses the data generated through each user’s transaction history and the basic Know Your Client (KYC) data from their phone to begin to build a simple risk profile. Through building key partnerships with NGOs in the agricultural space they are able to provide farmers with additional information such advice on which types of crops to grow and harvest. Helping the farmer to increase productivity and the likelihood of repaying the loan, this cyclical model is important component in creating a sustainable and manageable system. The team’s aim is to eventually offer other financial products for the agricultural community which they hope will help smallholders to become more competitive and scale their operations more effectively.


One of the challenges all lenders face is the lack of deeper financial knowledge and understanding in the wider entrepreneurial community. Many of Mangwee’s customers are not accustomed to saving. Going forward a key priority is to invest time into the sensitisation to the new technology, but also helping to increase financial literacy. This is critical to building a sustainable model, the opportunity to leverage the data being collected through each transaction enables their team to offer other tailored products such as micro-insurance, cash-flow management dashboards and link farmers to suppliers and buyers directly so they are able to get a better price for their crops.

The informal sector is complex and while it craves financial support to help it to grow, it has been hampered by a lack of confidence in its ability to produce a viable return on investment. Companies like Mangwee have demonstrated that there is considerable appetite from consumers. Working with specific communities, such as the agricultural community has enabled the team to target the specific needs of the consumer rather than building a one-size fits all solution.