At the cusp of closing down shop, for lack of liquidity to buy enough supplies partly occasioned by COVID-19 pandemic that has forced people to stay in their homes, a fintech company is bridging the gap between the liquidity, banks and distributors through data, enabling small business not only stay afloat but thrive in a short period of time.
Correlaction Africa, a fintech registered in Kenya is also ensuring small businesses not only stock products they can sell, but meet and even exceed the demand. Fred Njogu, the company’s Chief Operating Officer is ecstatic about their initiative, now two and half years in the Kenyan market.
“We realized that a lot of retail customers buy from suppliers what they can afford, with what they have at the moment, not the demand they have, so they have to buy a little bit of everything and they go out of stock. Yet they have a trading history with their suppliers as have been in the business with them”, he noted.
How it works
That was the cue for the company which branched out of the Netherlands and is now seeing the business grow between 25 percent to 70 percent, in the period they have been rolling out their initiative in Kenya. The smaller traders grow fast, the larger ones see modest to decent growth.
Distributors are happy because their logistics costs are not negatively affected since they do not have many returns as through technology, they know what quantities a retailer wants and can supply those goods. In addition, they can also push high-value products that give better returns, ensuring both the distributor and the retailer are happy.
Correlaction Africa will engage a bank, offering them a solution to what ensures they give out loans and get guaranteed returns. They then engage companies producing the goods to request them for their data including their distributors to increase efficiency in the process. Once they agree, they get the data and sieve them according to a profile the bank feels they can finance.
These are often businesses that banks have kept away from, since their records are poorly kept, but their distributors have that data. A bank will provide the rules that guide them in determining the profile of a business they can fund. A key important issue that banks do not have is Know Your Customer (KYC) information. A company like Coca-Cola has all that data because they are selling to their retailers.
Correlaction processes that data on Coca-Cola’s behalf, and Coca-Cola then asks their distributors to establish retailers who could be interested in being part of the initiative. They will be taken through the procedures which if they agree, they sign and this information is then shared with the bank.
Information is shared through USSD. The platform allows one to see the consent, and sales history which then a bank can access, conduct their own review before approving an overdraft. An overdraft is often five times what a retailer sells and the money is paid directly to the distributor, who then supplies the goods to the retailer.
Top me up
As the COVID-19 pandemic has been ravaging lives and businesses, in July, they got into a partnership with Coca-Cola, to see how they can also ensure businesses do not close down.
“The pandemic devastated many entrepreneurs especially small businesses. Since they have not been able to trade much, their capital has been depleted with some ending up to close shop. You find that in these businesses, Coca-Cola products comprise 30 to 40 percent, because they are fast consuming product. So, if you can sort this, the business owner has more cash to buy stock and the business will continue to run”, Fred asserted.
In the rules, they give the equivalent of five weeks purchase. This is calculated by establishing how much purchase a shop owner would sell in five weeks and providing them credit worth that amount. They then have a maximum of 15 days to repay the money. The Banks charge only one percent of the loan as interest, from which Correlaction Africa gets their commission.
Open Like Never before
The Open Like Never before a campaign by Coca-Cola is breathing life to businesses, with its pilot with five distributors in Ruiru, Juja, Mlolongo, Rongai and Kangemi, giving them hope that they will be able to recover to their pre-pandemic state and grow further.
So far, 400 successful applications have been submitted to the bank, 100 bank accounts already opened with the target to reach 3800 eligible customers in four months.
In the recruitment process that is done by the Coca-Cola distributors, the company embeds one of their staff to help answer any technical issues and with time, the distributors will be well equipped to undertake the process on their own.
A month into the pilot, they had not had any defaults.
Considering that the parent company is based in the European Union, they comply with the General Data Protection Regulations (GDPR) on how they acquire, transmit, store as well as remove data. They have also examined Kenya’s Data Protection Act which aligns to the same principles and practices.
For instance, they expunge any traders’ data within 30 days, complying with the principle of the right to be forgotten.
The whole process is paperless. The application collected the business owner’s ID picture, the front section of the shop, and telephone number among other details which are then saved securely in a server.
Banks also secure a traders’ data, just like any other bank account they may have.