Guest Articles

September 6

Fehintolu Olaogun

Why Credit is Key to Unlocking Africa’s Consumer Markets and Boosting Economic Growth

Africa’s consumer market is one of the fastest-growing globally. According to a 2018 report, consumer expenditure grew at 3.9% yearly since 2010 and reached $1.4 trillion in 2015, with projections that it will hit $2.5 trillion by 2030. However, this growth has primarily occurred without consumer credit, as consumers on the continent are still credit-starved. Most sub-Saharan African economies are mainly cash-driven at the retail level.

Credit is not altogether unheard of, but it has existed mainly in informal contexts as negotiated arrangements between buyers and sellers – so it is not structured in a scalable or efficient manner. A typical informal credit arrangement looks like this: A customer regularly buys from a shopkeeper. The customer has an immediate need for a product but can only pay at the end of the month. The shopkeeper gives the product to the customer in the meantime, on the strength of their relationship, while expecting payment at a future date.

This scenario, although commonplace, is not sustainable. African markets need organised consumer credit systems, like those enjoyed by consumers in more developed markets. It is no coincidence that some of the largest consumer markets in the world have sophisticated and widely used credit systems. For example, consumer credit is an important driver of the growth in China’s consumer spending. Between 2014 and 2019, its contribution to retail sales in China more than doubled, growing from 15% to 32% of overall sales.

Given the rapid growth that’s occurring in the African consumer market without widespread access to credit, imagine the growth that better consumer credit could achieve across the continent.


Credit leads to higher purchasing power

Despite data showing a fast-rising middle class and growing GDP in many of Africa’s economies, average purchasing power remains low. Large swathes of the population still live below the poverty line, regardless of the much-advertised economic growth figures. The latest World Bank statistics show that about 420 million people in sub-Saharan Africa live in extreme poverty – almost half of the region’s population. And as of 2019, only seven African countries had a minimum wage equal to or more than US $200 per month, while for the majority, it’s below $100. This makes it a challenge for a large percentage of African consumers to pay upfront for large-ticket purchases.

Credit affords low-income consumers higher purchasing power that can improve their earning power, which inevitably increases consumer spending. With better access to credit, even low-income earners have a greater opportunity to afford items that improve their lifestyles and their livelihoods. For example, across emerging markets, the cost of smartphones has been identified as a critical barrier to mobile phone ownership and internet access. For those living below $2 per day, a $100 smartphone accounts for almost 14% of their annual income.

Structured credit to purchase a $100 smartphone and access to the internet has the potential to improve the $2/day earner’s life – and it can also multiply her income as she gets access to more information and better productivity. As Jeffrey Sachs, the world-renowned economist recognized over a decade ago: “Poverty is almost equated with isolation in many places of the world. Poverty results from the lack of access to markets, to emergency health services, access to education, the ability to take advantage of government services and so on. What the mobile phone — and more generally IT technology — is ending is that kind of isolation in all its different varieties.”

Given these impacts, widespread access to credit to purchase smartphones is bound to positively affect smartphone penetration and digital inclusion and, therefore, poverty levels. And with reduced poverty comes higher purchasing power – and an even bigger consumer market.


Point of sale credit infrastructure for e-commerce

Credit also has the potential to drive e-commerce growth as internet and smartphone penetration increases. As of 2020, smartphones comprised 48% of total mobile connections in Africa, and by 2025, that percentage is expected to hit 64%. Increasing mobile internet use will boost the continent’s burgeoning e-commerce sector, and growing access to flexible and deferred payment options will encourage online purchases.

The African e-commerce scene is already growing, with platforms like Jumia, Kilimall and Takealot leading the charge alongside smaller brands, including those setting up shop on social media. From 2014 to 2018, the number of online shoppers on the continent increased by 18% annually, compared to the global average of 12%, with these increases driven by the region’s growing young, urban and digitized population. Just as consumer credit boosts retail sales generally, it is clear that credit options at the point of purchase could achieve the same for e-commerce. More customers will be able to order the items they are interested in online, thanks to the ability to pay off later or in instalments. In the same vein, growth in e-commerce will likely positively impact consumer spending, as buyers are drawn to the convenience and efficiency of buying online.


Providing credit for informal commerce

A large majority of retail sales in Africa (approximately 90% of transactions) are reportedly through informal channels such as roadside kiosks and hawkers. Offering digital consumer credit infrastructure to these informal retailers could be vital to expanding their customer base and sales, while providing another boost to consumer spending.

There have been increasing attempts to digitize informal trade in Africa, to drive efficiency in this immense section of African commerce. To that end, these informal traders are being provided with the means to restock (in some cases from manufacturers or distributors delivering directly to their storefront), organize inventory, and access credit facilities – all from their mobile phones.

Complementing these services by introducing digital consumer credit options could prove pivotal in helping these informal merchants attract more sales. As mentioned above, these sellers are often providing credit to their customers anyway – while assuming the risks, despite their low margins: They will appreciate the ability to provide this facility to more customers without the associated possibility of losing income in case of default. What’s more, data from these credit transactions in informal buying and selling will provide both retailers and researchers with better insights into consumer markets across the continent.

From whichever perspective one assesses Africa’s consumer markets, it is clear that efficient and sustainable credit options are a key obstacle to growth. And the experience of more developed markets shows clearly that a mature and thriving consumer credit ecosystem, amongst other things, is necessary to drive consumer spending, which should, in turn, boost the economy. It’s time for the enterprises, investors, development sector organisations and others working to accelerate development on the continent to recognize the impact potential of this vital sector.


Fehintolu Olaogun is the CEO and co-founder of CredPal.

Photo courtesy of Michael Pollak




Finance, Telecommunications
e-commerce, financial inclusion, lending