The expanding indigenous commerce phenomenon is rapidly compelling financial institutions to fully understand their potential clients. Part of the reason is that potential clients now have multiple identities (real and online) as well as social and economic identities. In some way, mobile technology and social media are exacerbating this trend. A credit history no longer says much about a client’s potential to repay loans. It only points to what has happened before but can’t tell you about new social responsibilities such as school fees and increasing number of dependents. Financial institutions which still rely entirely on credit histories for their lending decisions are driving while looking in the rear view mirror.
Over the years, the relationship between banks and their potential clients has not been good. There is still a lot of suspicion with the banks thinking the sector is un-bankable and characterized by high delinquency rates. On the other hand, potential clients see banks as interested in reaping more from investing less. High interest rates, collateral and other demands are cited as indications of banks’ appetite for harvesting more from less. Some traders say banks are less interested in understanding clients’ businesses but more keen on managing money.
This is where a partner like eMKambo who works with the bank’s potential clients (traders, farmers and processors) on a daily basis becomes important. Through continuous engagement with clients’ daily business activities, this partner understands the performance, challenges and potential growth pathways of sectors such as agriculture, value addition as well as the number of actors in each particular sector. Most training programmes from financial institutions focus mainly on financial products not the businesses they hope to finance. On the other hand, potential clients have gone through a lot of practical knowledge and experiences as well as social networking which they can’t translate into a convincing CV or profile that can be understood by financial institutions. eMKambo become relevant in documenting these experiences, knowledges and practices in ways that show these to be worth more than conventional notions of collateral. This documented collateral can be meshed with the best of banks’ expectations. Experiences of traders and their businesses can be used to enhance and then adjust financial tools so that they go hand in hand with their businesses.
At the moment, banks use generic financial tools for carpentry, clothing, agriculture formal employment, etc. This approach doesn’t take into account the dynamics and needs-based tools and packages from different agriculture market commodities and businesses. More traders believe banks provide minimal value added services but expect much from little investment. Collateral in the form of group guarantee and movable or immovable assets is sometimes cumbersome and does not guarantee loan repayment. Relationships and trust are more important since they lead to strong institutions.
There is need for knowledge brokering which introduces institutional tools that can merge formal pathways with informal experiences, knowledge and institutions resulting in a win-win scenario. By trying to match the best from both worlds, eMKambo hopes to promote integrated financial products. Banks contribute money and partial technical know-how mainly from the finance side while traders contribute practical knowledge and experiences from their practical business management – employment creation and food security.
The role of Information Technology (ICTs)
Given that markets are dominated by diverse actors, ICTs enable smooth sharing of information on commodity prices, input prices, commodity sources, transport services and market trends. Indigenous commerce teaches financial institutions to work with their competitors. In this case, ICTs are becoming adept at empowering healthy competition by making rules of the game transparent through continuous supply of information. There are more advantages to understanding your competitors because you are fighting for the same space where you definitely need to avoid cut throat competition. You have to exchange best practices. Some MFIs are not registered but still operate and compete in indigenous commerce. Such information can’t be gleaned from a formal credit bureau.
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