CIO Zone

Broadening Financial Inclusion Through Informal Sector Innovation

by Vahid Monadjem, Nomanini CEO and Co-founder


In developing markets around the world, it is the informal economies that serve as the quietly humming engines of growth. By way of example, the informal economy accounts for over 70% of total employment in sub-Saharan Africa – an economy that includes street vendors, traders in open-air markets, subsistence farmers and fishermen, personal drivers, roadside barbers, small-scale manufacturers and more. According to the International Monetary Fund (IMF), this sector is said to comprise up to 38% of the region’s GDP – more than double the figure for OECDcountries.

“Street vending is a vibrant sector of the urban informal economy… Current official statistics indicate that it is most prevalent in sub-Saharan Africa, where in many cities it accounts for 12 to 24 per cent of total urban informal employment”, explains Sally Roever, WIEGO’s Urban Research Director and author of Informal Economy Monitoring Study Sector Report: Street Vendors.

Interestingly, however, when discussing the global issue of broadening financial inclusion, these street vendors – and indeed, the informal economy at large – do not receive much attention. Yet by providing the right technology-driven tools and platforms to empower small businesses and traders within the informal sector, we can undoubtedly accelerate and encourage financial inclusion in developing markets across the globe.

Establishing a Digital Footprint 

To begin with, introducing elements of digitisation enables merchants to both automate and formalise certain parts of their business – allowing them to compete more effectively with their larger rivals. In addition, by creating more of a digital footprint, innovators can begin to better understand these businesses and the markets they serve. For example, a new form of credit scoring can emerge in a previously data-less retail environment, thereby allowing financial services players and other businesses to begin to offer loans and other products that meet the day-to-day needs of these informal merchants.

Without doubt, one of the key challenges within this sector is liquidity, and the provision of micro loans can ultimately boost and expand businesses in a short period of time. For example, Nomanini recently initiated a pilot project in partnership with the Bank of Ghana that extends small loans (between 10 – 400 Ghanian Cedi/roughly 2 – 90 US dollars) to 100 informal merchants in Accra. This transparent and real-time product offers 1 to 7 day loans, and has thus far seen a default rate of less than 1%. Importantly, the product is enabling Nomanini to gather key data and insights, which can ultimately lead to longer term and bigger loan products based on actual retail activity. Looking ahead, such loan products can position these smaller merchants to formalise various areas of their businesses, offer new products to customers and become more sustainable in the long term.

This is just the tip of the iceberg with regards to how innovation – and digital transformation in particular – can bolster informal economic activity, and in turn, global financial inclusion.