Farmers and traders have to juggle more than three variables to be successful which is why adaptation challenges are more current than technical challenges. Unfortunately formal institutions like banks do not understand all these variables and farmers’ coping mechanisms. Consequently, farmers and traders continue to be subjected to the same credit bureau rules meant for the formal sector. It looks like forcing formal institutions to understand the indigenous commerce (‘informal sector’) is like forcing a large plane to land on an airport designed for Helicopters and small planes.
While formal institutions tend to focus on topical knowledge spewed from educational institutions, this knowledge has problems adjusting to local practical contexts that are typical of indigenous commerce. Instructive teaching and learning are useless in indigenous commerce. A credit bureau for indigenous commerce should take into account how traders and farmers deconstruct and reconstruct knowledge in complex markets where cash and barter deals co-exist. By not capturing barter deals and relationships, a formal credit bureau fails to capture a critical component of indigenous commerce. Whether farmers and traders follow recommendations from formal banks is a hit-or-miss scenario because they are chasing many variables as indicated above. In indigenous commerce, there is no guarantee that banking manuals, financial research reports and recommendations will be translated into real financial solutions. Knowledge should be more analytical than operational financial institutions are to understand indigenous commerce. This is because knowledge is just one essential ingredient of competency in indigenous commerce with trust and relationships being some of the most important ingredients. What is important is not knowing about the world of banking but knowing what is required to actually go out and make a difference in the real world.
In indigenous commerce, learning happens fast within networks of traders and farmers who bypass the classical reporting loop. When traders and farmers learn from each other according to their lines of business, they immediately put knowledge into practice without waiting for someone to document what is going on in the market. ICTs are enhancing learning that happens through direct knowledge exchange in the market without going through some hierarchical filter. In this case, traders and farmers in the market front line of markets constitute deep sources of practical wisdom.
However, there are limits to how farmers and traders can learn from other people’s experience. Social social learning processes like those happening in indigenous commerce cannot be mandated formally from the top or cut short before going through their full cycles. Adaptive challenges faced by traders and farmers in agriculture markets require co-creating of solutions, whether financial or economic. Trader and farmer experiences cannot be photocopied and dumped in Zimbabwe. Otherwise we end up with well- articulated and analyzed business models which do not speak to the reality on the market. Understanding what farmers and traders are struggling with on the ground is the basis for a relevant credit bureau.
Unfortunately, Zimbabwean institutions like banks and development partners are failing to grasp and distinguish adaptive from technical issues confronting the agriculture sector. While the technical angle emphasizes knowledge from experts such as bankers, the agriculture sector is in the throes of adaptive challenges where solutions are not known and have to be co-created by farmers, traders, academics, consumers, transporters, development partners and policy makers. A strong credit bureau will have to evolve from perspectives from all these clusters. It can’t emerge from throwing technical solutions at the issues. Turning adaptive challenges into technical problems and solutions is a big mistake that has to be avoided.
The idea behind a Credit Bureau for Market Traders
eMKambo has set out to mobilize ideas and institutions toward creating a Credit Bureau for traders and farmers operating in indigenous commerce. This initiative will build the confidence of financial institutions so that they start taking traders as borrowers rather than just anticipated savers. Negative perceptions about people’s markets like Mbare, Malaleni, Sakubva and many others have prevailed for a long time, cementing some level of reluctance by financial institutions to lend money to traders. Existing formal credit bureaus that are used to assess individuals’ creditworthiness are not entirely relevant because they focus on employment-based borrowing histories. On the other hand, the people’s market is populated by people who have never been formally employed. This means there business or transaction history will be missing from the formal credit bureau.
Traders are responsible for moving more than 60 % of the food that flows into urban areas from production zones. In fact, markets like Mbare are the first ports of call for all the food that ends up in many urban markets and small markets run by vendors in high density areas. Money and relationships are responsible for moving all this food. A credit bureau that captures all these dynamics is needed.
Features of an ideal indigenous commerce credit bureau
The Indigenous Commerce Credit Bureau that eMKambo is crafting provides vital and up to the minute information about each trader and farmer. This information will be available for serious financiers keen to advance loans to traders. Towards consolidating the credit bureau, eMKambo has already compiled the following details for each of the close to 10 000 traders that deal in food and other commodities in 20 markets across Zimbabwe:
- Name and Surname.
- Date of birth.
- Contact address.
- Stall address.
- Trading years.
- Commodity specialization.
- Average volumes traded per day/week/month/year.
- Average revenue per day/week/month/year.
- Profits realized per day/week/year.
- Loans (formal or informal) applied before.
- Repayment history.
- Current loan (formal or informal) status.
- Social capital (relationships)
A scale of scores is being designed for each trader or farmer. The level of default determines the score. The higher the score the better. If a trader changes from poor performance to a better performance the score is increased. Before writing off a trader, many aspects are considered. Some traders prefer holding their cash as stock not as physical cash so they are never liquid. The business cycle differs with the type of produce traded. Vegetables usually do not take up more than three days on the stall and this implies within three days the trader would have realized a profit. In instances where a trader is selling dried grains the stock might take about a week or more. This means traders specializing in different commodities have to be treated differently. The Indigenous Commerce Credit Bureau sets scores in ways that differentiates traders and farmers in line with the nature of their businesses.
The main advantages of having a Credit Bureau for the Agriculture market traders include:
- Traders become aware of the importance of discipline in business. Recording all their transactions will make them see if they are making a profit, loss or if they are breaking even hence giving them room for business growth.
- Increasing traders’ chances of obtaining loans and support from other stakeholders interested in agriculture because the credit bureau enhances confidence in the trader’s business.
- The credit bureau shows business trends for each trader or farmer – an indicator of progress and what needs improving from operational or policy angles.
Developing scorecards appropriate for traders and farmers working in indigenous commerce requires a combination of technical modeling skills and practical knowledge of how people’s markets function on a daily basis. However, since the scorecard in the credit bureau does not replace human judgment but complements human intelligence, eMKambo has financial literacy officers whose roles include providing the humane judgement that is critical for sustaining relationships in indigenous commerce.
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