The rise of easy credit in Africa


Buy Now, Pay Later (BNPL) instalments plans are attractive.

Photo credit: File | Nation Media Group

What you need to know:

  • Short-term financing that allows consumers to make purchases and pay for them at a future date is gaining popularity in Africa. 
  • According to Research and Markets Q4 2021 BNPL Survey, this innovative payment industry has recorded strong growth over the last year.

As the cost of living skyrockets post-pandemic, more and more companies are entering into the pay-over-time loans space, tapping opportunities in one of Africa's nascent but quickly-growing industries.

Short-term financing that allows consumers to make purchases and pay for them at a future date is gaining popularity in Africa as rising costs of living push digital-savvy shoppers to spread the costs of their big-ticket purchases.

Buy Now, Pay Later (BNPL) instalments plans are attractive. They are also, often, interest-free, promising to be an alternative payment method for everyday purchases and to the high cost of credit that faces many unbanked Africans and comes with tough checks.

According to Research and Markets Q4 2021 BNPL Survey, this innovative payment industry has recorded strong growth over the last year, and is projected to hit 7.2 billion US dollars by the close of 2022, for Africa and Middle East Markets. 

Ukraine war

This growth, the research firm said is, “supported by increased e-commerce penetration along with impact of economic slowdown due to disruption caused by Covid-19 outbreak.”

International Monetary Fund (IMF) in its latest Sub-Saharan Africa outlook shows Russia’s invasion of Ukraine has prompted a surge in food and fuel prices, pushing the region’s inflation to 12.2 percent in 2022- the highest level in 15 years. 

Sudan currently has the highest inflation rate - at 245 percent - in Africa, according to Statista, owing to the twin impacts of a long-running economic crisis and political instability.

Zimbabwe, with a long hyperinflation history and Ethiopia - riven by civil war in two regions - have the second and third highest inflations at 86.7 percent and 34.5 percent, respectively. 

Statista ranks Cabo Verde as the country with the lowest Inflation rate - at 2.3 percent - with other reports showing that earlier in the year the country's inflation rate spiked to over 8 percent, due to the impact of Russia's invasion of Ukraine war.

“The effects of the war will be deeply consequential, eroding standards of living and aggravating macroeconomic imbalances,” said the International Monetary Fund in its regional outlook.

The BNPL payment method is a fast-growing choice of offering amongst startups, and existing merchants and has now attracted even mobile service operators- as populations in Africa look for ways to manage their tight budgets.

Companies in the BNPL space mostly make money from transaction fees charged to retailers. While retailers give up a slice of their profits, they benefit from the arrangement thanks to higher overall sales.

Safaricom, Kenya’s largest telco by subscriber numbers is the latest to join the fray, after unveiling Faraja, a zero-interest credit service that allows its more than 30 million subscribers to make in-store purchases for goods up to 1,000 US dollars - and pay later.

While most local BNPL providers require users to pay upfront, Safaricom is changing the rules of the game by allowing shoppers to walk away with goods without any advance payments. However, purchasers have to repay in full or instalments within seven to 30 days. 

Zero interest

“You will only be required to repay the outstanding facility amount as advanced to you by us (in whole or in part) using the designated Paybill number or such other channels as provided by us from time to time,” Safaricom states on its website.

By zero-rating interest on this credit facility, Safaricom looks set to unsettle competition in the country’s digital lending scene- including its own, costlier mobile credit products - Fuliza and M-shwari.

Kenya’s inflation rate accelerated to 7.9 percent in June - breaching the country’s central bank target range of between 2.5 to 7.5 percent for the first time in five years - on skyrocketing food prices in the country.

The trend is also being driven by fast-rising numbers of point-of-sale financing offers.

South African fintech Payflex is considered the first and largest BNPL player in the country and has been attracting foreign investors seeking Africa expansion since its launch in 2018.

In September 2021, Payflex was acquired by Australia Securities Exchange (ASX)-listed Zip, in a global expansion plan into Africa.

Last month, PayU, a Netherlands-based payment solutions company announced its Africa expansion, entering the Ghana, South Africa and Nigeria markets and targeting feature phone users.

In South Africa, PayU partnered with Payflex, promising consumers four equal and interest-free instalments.

“Our recent product updates and partnerships in Africa reflect our aim is to serve the needs of our merchants, particularly during these times of economic uncertainty, to help build their businesses, drive growth and further delight online shoppers,” said PayU's payments division, Global Chief Executive Officer, Mario Shiliashki.

Safaricom’s Faraja offers tough and direct competition to Kenyan startup Lipa Later, which raised 12 million US dollars earlier in January to boost its coverage in the market and expand into new ones across the continent.

Lipa Later, has already expanded into Uganda and Rwanda and is looking to make entry into Nigeria, Ghana and Tanzania among five target markets by year-end.

Nigerian Y Combinator and Google-backed, CredPal raised 15 million US dollars in March 2022 to expand operations in its home market and scale across Africa. CredPal has over 85,000 active customers and more than 4,000 merchants.

Last month Moroccan retail tech startup, Chari began its African expansion in the Francophone market, with its 100 percent acquisition of Ivory-Coast start-up, Diago. In January, Chari announced it had secured financing that would allow it to enter the Tunisian market.

Egypt’s first BNPL startup, Sympl, raised 6 million US dollars in a seed round in December 2021 to support nationwide expansion, aiming to grow from 240 retail and online stores, to 1,000. Its key target is 49 million bank card holders.

The Congolese crooner has been in the country for one week, and capped her tour with a performance at the Carnivore Restaurant in Nairobi, today. (Saturday July 9)