Africa has a credit problem

And tech is struggling to fix it

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People exchanging money in Abidjan, Côte d'Ivoire

Somewhere in the world right now, a country is borrowing cash to make its budget work.

A business is borrowing to load up on supplies, promising to pay later.

A cash-crunched shopper is using a credit card to pay for groceries.

And a family is locking in a mortgage for their dream home.

Credit makes the world go round.

In 2023, global debt hit a record $307 trillion, marking what countries, families, and businesses borrowed altogether.

But accessing this credit wasn't fair play for everyone. It’s never been.

In Africa, particularly, accessing credit from a bank is a three-part headache.

It’s costly. It’s choosy. And it’s not in a hurry.

Credit access in Africa is broken

A market street in Cairo

Morocco (71%), Egypt (67%), and Nigeria (60%) rank among the top seven countries globally with the highest unbanked population.

In Nigeria, only 60.2 million of its 160 million adults have bank accounts.

Zoom out on the whole of Africa, and you’ve got over 350 million people who have never had a bank account.

That means missing out on many financial services, like saving, investing, and credit.

But even with a bank account, getting a bank loan in Africa isn't the most inclusive experience for everyone.

There’s the usual slow application with lots of paperwork.

And then, banks have a checklist that leaves people out. Like:

  • Have a steady income

  • Make sure this money flows through your account

  • Keep some money in your account to prove that you use it.

And get this, we're talking about a continent where millions are out of work.

So that whole steady income requirement? Hard pass for most.

Even in places like Kenya, East Africa’s economic hub, people take home an average of $123 a month.

No one’s letting that sit in a bank just to keep their account 'active'.

So it’s no surprise that in Nigeria, 70% of bank account holders still struggle to access formal credit. Yet the credit demand is huge.

Tech-driven startups are stepping in to meet this demand.

So much so that ‘digitising credit’ has practically become a buzzword within fintech circles.

Tech is taking on the credit problem

Mobile loan apps on a Kenyan phone. Image credit: Techish

Throw a stone at any app store on an African phone and you're likely to hit a lending app.

It’s a loan-demic, and one report by Google and AppsFlyer backs this up.

After looking into Google search trends and scouring over 140 million app installs around Africa, they found that:

  • The amount of finance apps, including lending apps, shot up by 25% in the last year.

  • Google searches related to lending dominated from May 2021 to May 2022.

And there’s a reason why mobile lending apps seem to be a hit.

Unlike banks, which are picky and slow, these apps are quick and easy.

They don’t ask for tons of info – you just drop your phone and ID number and your loan shows up in minutes.

But digital lending is taking a shady turn

Borrowers getting money from some of these apps run into sketchy loan terms - like crazy-high interest rates, or lenders calling up their phone contacts to hustle repayments.

It’s a data privacy nightmare.

And it gets worse.

Debt collection agents can get physically and verbally violent, as shown in this Kenyan media expose:

In Nigeria, Ghana, and Uganda, it’s a similar story.

So are these apps helping or hurting?

Definitely, digital loans offer a speedy and hassle-free fix for money problems.

But the same things that make them attractive also hint at trouble.

They're speedy because, most times, lenders don't dig too deep into borrowers’ backgrounds.

Since they're not thorough, they rope in borrowers who, in the end, can't pay back.

And because they can't, it messes with these borrowers' credit ratings, making it tough for them to access decent credit down the road.

So where’s the financial inclusion again?

We don’t quite see it.

Which is why before we go all-in on ‘tech disruption’, we could first look at how Africa has always handled its credit challenges and low income.

And one way Africa has been accessing credit is:

Chamas: the groups saving Africa for generations

A women Chama in Kenya.

East Africa calls them Chamas. West Africa calls them Susu or Tontine, and South Africa calls them Stokvels.

Where banks drop the ball, these groups step up, becoming the backbone for saving, investing, and lending among their members.

They’re invite-only, so trust levels are through the roof.

And they’re very simple in design:

  • Each month, members contribute a small sum, managed by the group's treasurer

  • Then, in a regular rotation, one member walks away with the money

  • Rinse and repeat until it’s everyone’s turn.

But they’re not just sharing money.

These groups also work like banks, lending members money from pooled savings with interest.

The interest is then re-invested collectively into money-making projects.

It’s a simple set-up, yet these groups have saved Africans for decades.

Susu, which means little by little, found its way to Ghana from Nigeria in the late 1890s.

In South Africa, Stokvels were the black community’s way around unfair race-based policies that held them back economically.

Members saving and borrowing money at a Stokvel meeting in South Africa.

Meanwhile, in Kenya, these groups kicked off as a survival tactic during the tough economic times of the 1980s and 1990s.

In Kenya, women's chamas are leveling up, evolving from simple savings pools to full-fledged investment clubs.

Milele Alliance in Kenya is a good example.

In 2007, ten women pooled their resources, saving $185 monthly (Ksh 30,000).

Meeting every third Saturday for eight months, they set goals, crafted a constitution, and registered as a company.

A year later, with a banking partner, they bought a residential property, growing their portfolio to over $215,384 (Ksh 35 million) in 2020.

Members of a chama having a meeting.

And this is just one example.

In South Africa, 11.6 million people (40% of the adult population) are in groups like these, and Kenya is home to over 300,000 chamas.

Credit is still a problem in Africa.

And while fintech has tried to solve the problem, the jury is still out on how well it’s worked.

In fact, the super-easy credit we're tossing around might be dragging low-income earners deeper into debt.

And it’s not exactly what we need to grow businesses or lift economies out of poverty.

We should pay more attention to methods Africa already uses for credit access - like chamas.

And chamas tell us that tech isn’t the fix to every problem. Sometimes, solutions are grounded in the reality of life on the continent, in the very traditions Africans have always used to solve their problems.

What do you think about chamas? Let us know here.

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