Understanding the business of lending to the informal sector

eShandi CEO, Chilufya Mutale-Mwila, has recently been recognized as the CEO of Africa’s fourth fastest-growing fintech company. The Financial Times ranking, a globally respected benchmark for business growth on the continent, has honored eShandi, making it the only Zambian company to be ranked fourth this year. This recognition signifies a significant milestone for the company and its team. One of the key areas of focus for eShandi is lending to the informal sector in Africa, particularly in markets like Nairobi, Kenya, and Uganda where formal credit histories are rare. With over 57 percent of the population in Africa lacking access to traditional bank accounts, there is a significant financing gap for small and medium-sized enterprises (SMEs) in sub-Saharan Africa amounting to over $330 billion. To address this gap, eShandi leverages last-mile technology and artificial intelligence (AI) to provide credit assessments. By analyzing data points such as mobile money transactions, purchase frequency, average balances, and social metrics, eShandi is able to underwrite risk at scale and provide collateral-free credit facilities to customers in the informal sector. One key insight shared by Chilufya is the importance of understanding customer behavior and business cycles to tailor loan products effectively. For example, data has shown that women and individuals with stable mobile money account and business records are better payers. By developing customer-centric business models and responsible lending practices, fintech companies can improve the quality of their portfolios and ensure sustainability in the long run. In the realm of digital credit, Chilufya emphasizes the need for responsible lending practices to avoid becoming extractive. By offering flexible terms, understanding customer needs, and pricing loans appropriately based on the borrower’s business margins, fintech companies can build trust and foster financial inclusion in underserved communities. Looking ahead, eShandi is focusing on expanding its presence in East and West Africa with the vision of developing a pan-African challenger bank for small businesses. By targeting markets with similar characteristics to those in Southern Africa, eShandi aims to continue its mission of serving SMEs and individuals excluded from traditional financial systems. With a commitment to responsible lending and a customer-centric approach, eShandi is poised to drive financial inclusion and economic growth in Africa's informal economy.