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Smart Starts

Small Loans,
Big Dreams

In Kenya, an app developed by IBM is helping small-scale vendors and farmers get on better financial footing. Can the app possibly bring reliability and profitability to the country’s biggest employment sector and beyond?

Images courtesy of Twiga Foods

Clad in a New York Yankees baseball cap and a colorful short-sleeved shirt, Kevin Nakuru wakes up every day to dash out to the streets like thousands of other similar fruit vendors in Nairobi. Before there’s even a glint of sunlight in Kenya, the 20-year-old is already preparing his bananas, melons and oranges to sell to passers-by. In Africa, where 96 percent of food is sold via such “informal retailers”, Nakuru sees his small four-year-old business as an opportunity with room to grow. "I was able to buy a scooter because of my work,” he says.

He’s also had help in the form of Twiga Foods, a Kenya-based food supply platform that was also established in 2014. Seeing a need to improve Kenya’s agricultural market and wishing to address issues such as increasing food prices, safety and sustainability, Twiga Foods wanted to connect the desires of the country’s farmers with those who are selling their produce. In just four years, the company has become the largest distributor of several food staples in Kenya. To cite just one example, they have sold over 55 million bananas to date and deliver over 4,000 food orders per week.

Images courtesy of Twiga Foods
“Twiga is a platform that connects urban retailers with rural farmers in Kenya.”Grant Brooke, the CEO and co-founder of Twiga Foods

“In the past, retailers like Kevin had to get up at five in the morning to walk to markets in the middle of Nairobi, and then get a pushcart or shuttle to transport it back to their store. Instead, we allow them to order on our platform, which then gets delivered directly to their outlet. This leads to better quality produce at lower prices,” says Grant Brooke, the CEO and co-founder of Twiga Foods.

In turn, that massive vendor collective is also helping farmers because there is now a reliable market chain, and better prices as well. To date, Twiga has just gone through its fourth round of funding, with well over US$10 million dollars raised. And the entire process - from Kevin's daily need for fruit, to delivery and payment - all begins with an app on Kevin's phone. That saves him a trip to the market, allows him to receive small business loans, and enables Twiga Foods to deliver fresh produce directly to him. Farmers, in turn, receive payment within 24 hours and get receipts. A paper trail is developed, making it easier for everyone to develop a credit rating.

How Blockchain is Helping Small Businesses in Kenya

1. Local Farmers

  • Massive vendor collective expedites growth
  • Payment received within 24 hours
  • Access to reliable market chain
  • Sell produce at better prices

2. Local Vendors

  • Perform transactions easily with mobile app
  • Save a trip to the market place
  • Receive deliveries of fresh produce
  • Access to small business loans

3. Building Businesses

  • Farmers receive accurate receipts
  • Develop a paper trail that establishes financial records
  • Vendors and farmers can create formally recognized companies
  • Financial services (e.g. loans) can be delivered based on clearer business information
“Helping these vendors formalize, provide records and become proper companies allows us to start providing financial services on the back of it.”Grant Brooke, the CEO and co-founder of Twiga Foods

“We're able to take Kevin's purchase history from Twiga, have a good idea of what he can sell during the day and provide him with capital to help grow his business,” says Brooke.

A Chance Meeting

This is a major development as banks in the region are traditionally reluctant to lend to small businesses. With the current monetary demand for loans estimated at US$6.5 billion a year in Kenya, this means that many small and medium-sized businesses — thousands of vendors similar to Kevin — need a new system in place to jumpstart the country’s economy. “Twiga is looking to scale this business across the thousands of retailers we serve in Nairobi and beyond — and also, to the suppliers on the back end of Twiga’s marketplace on the agricultural production side,” says Brooke.

The app was created following a chance meeting Brooke had with an IBM researcher on a business panel in Nairobi, where they discussed their mutual concern about such issues and how to solve them. The two companies subsequently discussed technological solutions that revolved around the needs of small and medium-sized businesses in Kenya. The realization that mobile phones are far and away the biggest mode of communication in the country — 94 percent penetration at present — was key. It was agreed that transactions that can be processed and analyzed via blockchain and Artificial Intelligence (AI) would help vendors develop a transaction history, which is crucial for analyzing and determining credit potential.

“Initially, we were involved in figuring out how to use mobile phone data to understand a profile and limits for individuals. But then we realized there is a bigger picture: small and medium enterprises actually have a problem getting access to financing.”Dr. Solomon Assefa, Vice President and Director, IBM Research Africa

Tap For Fresh Fruit

During an eight-week trial period with the app, Twiga and IBM handled more than 220 loans for small vendors like Kevin. Loans averaged about US$30 each and the data showed that order sizes rose by 30 percent, with retailers gaining six percent more in profit. The loan period ranged from four to eight days with an interest rate of one to two percent. When vendors make an order for supplies from Twiga, they receive a text message from the IBM system, which provides the vendors with options for financing. After vendors reply to the message, the order is paid for, and they pay the loan through the method previously selected. “Based on the loans the vendors take and when they pay back, we’re able to improve this and know what kind of credit we should provide,” says Andrew Kinai, Software Engineer of IBM Research Africa.

“The underlying platform supporting all of this is blockchain. All the steps of taking out a loan are controlled by a smart contract in the blockchain. This system can eventually be extended to any buyer-seller relationship.”Andrew Kinai, Software Engineer of IBM Research Africa

A Huge Potential

Based on the results of the pilot, a larger scale trial is planned with even more features. What is key is that the blockchain technology is secure. Due to the loans, the orders vendors were able to place also increased. "The pilot was extremely successful, and we believe this application — based on blockchain and AI — could also work in agriculture and manufacturing, because these sectors also involve small and medium enterprises," says Assefa.

"We saw that there's a huge potential for the technology and the platform, so we would like to extend it to thousands of small and medium enterprises and deploy it across not only Kenya, but the African continent."Dr. Solomon Assefa, Vice President and Director, IBM Research Africa

This transformation all begins with small enterprises like Kevin’s fruit stall. “To the people who say that there are no jobs, I would tell them to see where they can set up a small business because you will be able to earn a living," he says. "I am able to feed my family because of this work.”

Video courtesy of Twiga Foods