How technology can help bank Africa’s informal economy

One of the central debates in technology today is whether advances in digital systems, artificial intelligence, and machine learning will broaden access to opportunity or entrench the patterns of exclusion embedded in many economies. The stakes are high because these innovations have begun to permeate almost every domain of productive activity and the speed of adoption has created a sense of inevitability around their influence. Yet the question of who benefits from these tools depends less on their technical sophistication than on the data they learn from, and the assumptions built into their design.

This tension is arguably most evident in financial services, which for the better part of the last decade has been spearheading the adoption of emerging technologies across both its front-end channels and its back-end processes.

Institutions have been rebuilding core systems to handle higher volumes of digital interaction, automating decision pathways that once depended on manual review, and using behavioural data to refine how products are delivered and supported. The effect has been to shift a growing share of operational activity into environments where algorithms mediate risk, recognise behavioural patterns, support threat detection across digital channels, and shape real-time engagement with customers, creating a model of financial intermediation that relies increasingly on machine-led interpretation.

But it is here that the constraints start to show.

Some of the models now embedded in financial systems have been trained largely on the formal economy, because that is where the clearest records, regulated transactions, routine income flows, and structured histories reside. Even as institutions modernise their technology stacks, the underlying mechanics of risk assessment still depend on signals that formal businesses and salaried individuals are far more likely to produce. The result is a digital architecture that advances rapidly in capability while still drawing its intelligence from a narrow reading of economic activity.

When you consider the scale of the global informal economy, the implications for inclusion become clearer. Roughly 2 billion people, more than 60% of the world’s working adults, earn their livelihoods in settings where activity is recorded inconsistently or not at all, and in low- and middle-income countries this accounts for close to a third of total output. At the same time, an estimated 1.3 billion adults were still without access to a formal account as recently as 2024.

In sub-Saharan Africa, more than 80% of employment is informal, and roughly 90% of consumer spending is still done in cash. Countries like Kenya, for example, have more than 15 million people earning their livelihoods in the entrepreneurial informal economy. Almost half of these workers are aged between 15 and 34, and close to 60% of informal enterprises are owned by women. This largely unseen 83% of the labour force generates about a quarter of national GDP, employs five times more people than the formal sector, and creates jobs at a rate that is ten times as fast.

Conditions like these across the continent mean that a significant share of productive life is invisible to systems that rely on documented patterns of activity to recognise economic participation. But invisibility does not mean an absence of information.

A market trader knows which regulars pay on time because she has watched them settle small debts at the day’s end for years. A ‘boda boda’ driver in Kampala can read demand in the way traffic gathers at certain corners before sunrise, adjusting his routes long before any platform captures the pattern. In many neighbourhoods, savings-group members judge reliability through months of steady contributions and how people behave when emergencies arise. Even mobile-money agents, who handle hundreds of tiny transactions a day, build an intuitive map of who is running a stable operation and who is under pressure.

The lesson from Africa’s informal economy is that innovation has to be human-centred if it is to succeed. And financial institutions are beginning to understand this with far greater clarity.

The most significant progress is emerging where institutions treat alternative data as a primary source of intelligence. Mobile interactions, micro-transactions, dense trading patterns, savings-group contributions, and mobility footprints are being analysed with increasing sophistication, and these signals are transforming risk models from within. Institutions are finding that they offer stronger explanations of creditworthiness and liquidity patterns, enabling decision-making grounded in evidence drawn directly from lived economic practice and allowing banks and other actors to extend equitable access to financial services to people who have long operated outside the boundaries of formal markets.

One of the developments making this new use of alternative data possible is the rapid uptake of digital platforms capturing the transaction histories, top-up patterns, fulfilment cycles and repayment micro-behaviours that are forming financial identities with real weight inside institutional processes. And once these financial identities take shape, institutions are applying adaptive lending frameworks and community-based scoring mechanisms, among other tools, to extend products such as microloans that help entrepreneurs grow inventory and stabilise cashflow. The economic effect is becoming visible in the micro-retail ecosystems that sustain employment and anchor household income across urban and peri-urban markets.

The success of these models rests on a growing recognition across the financial sector that no institution can extend meaningful reach on its own, which is why ecosystem partnerships have become so central to this work.

More of these are emerging across the continent, with mobile banking, agent networks, and strategic fintech collaborations embedding banking services into underserved and remote communities. Take, for example, Wezesha Stock in Kenya, a platform developed through a collaboration between Absa bank and a local fintech that supports fast-moving consumer goods (FMCG) distributors and small retailers by automating stock financing and smoothing the movement of working capital. Many of these businesses operate without formal documentation, yet the platform’s design allows them to access unsecured financing that keeps shelves stocked and cashflow steady.

The integration of informal actors into formal financial ecosystems is beginning to create pathways through which economic activity becomes more visible and more connected to institutional support. As more of the continent’s economic life takes shape within digital environments, the systems built around it will play a central role in shaping Africa’s digital future.