How consumer credit can drive growth in Africa’s emerging e-commerce sector

Lack of access to consumer credit is holding back the retail sector in Africa.

Lack of access to consumer credit is holding back the retail sector in Africa. Image: Unsplash.

Fehintolu Olaogun
CEO and Co-founder, CredPal
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  • E-commerce in Africa increased by 57% between 2019 and 2020.
  • Lack of access to consumer credit is holding back the retail sector.
  • Credit could expand purchasing power and increase e-commerce.

Retail in Africa is primarily informal. Most consumer buying occurs in open-air markets, small shops, tabletops, kiosks, and street hawkers. These sellers operate informally and are the backbone of trade in many African countries.

However, recently, e-commerce in Africa has been on the rise. Africa's e-commerce market revenue increased by 52.7% in the year between 2019 and 2020. Also, the massive population of informal retailers are gradually coming online. More of these vendors are being exposed to modern tools and support systems, such as online marketplaces and social media shops. Today, you'll find everything online from car spare parts and used cars to fabrics and livestock feed sold by the same retailers with physical stalls in the street markets, indicating their adaptation to increasing internet usage and digital-savvy consumers on the continent.

However, as retail evolves, everyday consumers are still largely handicapped by a lack of structured consumer credit across Africa. Both formal and informal retailers do not have the underlying systems to sustain credit facilities for their customers, and most vendors primarily operate a cash and carry model. Hence, consumers always have to wait until they can afford to pay in full.

Until recently, the developing e-commerce sector largely followed this trend, offering consumers limited opportunities for credit purchases. But there's immense opportunity to grow e-commerce and retail broadly, with adequately structured consumer credit.

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The credit opportunity

Consumer credit has the potential to expand purchasing power in a market rife with low and fluctuating incomes. Almost one in every two persons in sub-Saharan Africa is impoverished. Only seven African countries have a minimum wage equal to or more than $200, while for the majority it's below $100. As a result, many African consumers cannot afford to pay outright for essential items such as mobile phones or generator sets, which power their livelihoods as much as it aids improved living standards.

Consumer credit has the potential to expand purchasing power in a market rife with low and fluctuating incomes.
Consumer credit has the potential to expand purchasing power in a market rife with low and fluctuating incomes.

Credit could, however, turn circumstances around and mitigate the hardships of poverty. With better access to consumer credit facilities, people in the low and middle-income class will have a better opportunity to afford items that improve their lifestyles and livelihoods. For example, the woman who sells cold drinks by the roadside, packed in a cooler along with blocks of ice and makes less than $100 in monthly profits is unlikely to afford outright payment for a freezer. However, with access to consumer credit facilities, she can buy a freezer which will serve and grow her micro-business and, more often than not, also eases household cooking chores.

Thankfully, digital technology is already helping to expand credit access for consumers in some innovative ways, from Unstructured Supplementary Service Data (USSD) options to mobile loan apps that require little to no paperwork. However, these need to connect with the different forms of e-commerce on the continent as they gain traction.

Motivating adoption of consumer credit

Providing a sustainable and no-hassle point of sale credit option could further increase the adoption of e-commerce. It can attract new internet and smartphone users or previously hesitant buyers.

Trust has been identified as a limiting factor for e-commerce penetration. For example, in examining the causes of low e-commerce adoption in Central Africa, a GSMA report states that some "consumers have reservations about entering their bank card details on internet platforms or want to check the adequacy of goods on delivery before paying." The ability to purchase goods without paying outrightly could create trust by reducing the buyers' risk instead of paying up front.


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Overall, if more consumers become empowered to access purchases they previously could not afford due to a lack of options, there is bound to be an increase in e-commerce performance. According to the RBC Capital Markets, "many retailers are increasingly turning to online point-of-sale (POS) because it increases conversion rates 20-30% and lifts average ticket sales 30-50%."

On the other side of the world, in South East Asia, some of its biggest digital tech firms are similarly trying out consumer credit to drive e-commerce. The region is a good case in point as it shares similar market conditions with Africa, such as low financial inclusion rates and growing access to mobile internet. E-commerce gross merchandise value in South East Asia was projected to top $100 billion this year. Firms like Gojek and Grab are leveraging services like PayLater to capture more e-commerce market share, among other things. Both firms, alongside other “super-apps” in the region, layer these credit services on their other offerings, such as marketplaces and ride-hailing services.

In the end, the opportunity is glaring: African consumers need better access to credit. Filling this gap could make a substantial difference in capturing new e-commerce sales, generating repeat customers and driving rapid e-commerce growth.

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