Access to credit is a challenge not unique to any particular set of businesses, but it is more pronounced in the African context especially for small scale traders and merchants. While merchants in Africa contribute significantly to continent’s economy, the way they operate begs the question: “Are they served well by financial institutions?” The answer is, “No.”

Such merchants across the continent, for reasons such as a perceived limited financial muscle, find it difficult to access formal credit facilities from lending institutions. This means financial shortfalls in their businesses have dire repercussions.

But Kenyan tech startup Nyayomat, which describes itself as a buy-now-pay-later (BNPL) platform for the B2B market in Africa, is making inroads in addressing this business hurdle. It is also helping businesses with better record keeping and online visibility. It deploys blockchain technology for part of its operations.

“We started off roughly more than a year ago and now have 311 active merchants. What we mainly do is trying to solve the issue of access to credit for small scale merchants,” says Samwel Odundo, founder and CEO of Nyayomat. “60% of small merchants in Kenya have no formal access to credit, which of course is usually facilitated by banks. Also 90% of all these small businesses are small and medium-sized enterprises (SMEs).”

Bridging the Business Disconnect

The situation presents a case of disconnect in terms of the businesses’ reach and access to credit. This credit is what is required to facilitate the merchants’ growth and development.

And that is where Nyayomat comes in. It attempts to bridge that gap by facilitating access to the requisite credit to the small merchants. Through the platform, merchants can access the products they need from Nyayomat’s partners, who are the product asset providers.

They can then pay for these products as they sell them, making it a win-win solution for both the small scale merchants and product providers who partner with Nyayomat. In the entire deal, Nyayomat earns 19% of the net value of its transactions, per annum.

Odundo says Nyayomat mainly works with dealers in fast moving consumer goods (FCMGs) and capital asset providers including those that provide services like cold storage facilities. The startup just started facilitating the provision of cold storage as a capital asset particularly for merchants dealing in fresh commodities like milk.

“The partnership we have with the merchants is that we come in between them and our partners. We guarantee them so that our partners -the suppliers- have the confidence to give them the credit they seek,” Odundo tells NODO News. “We generate the credit scores for these merchants so that we can onboard in our platform those who are deemed to be reliable. When these merchants make the payments for the products, we redirect these payments to the suppliers.”

More Than 60% of Small Merchants Have No Access

(Bunches of roses showcased at a shop in Nairobi, Kenya / NODO News)

At least 60% of small merchants had virtually no access to formal credit facilities, while they comprise 90% of all businesses in Africa. This definitely makes it hard to achieve financial prosperity for both the merchants and even the continent itself, according to Odundo.

Currently, the company’s 311 active merchants are mainly in Nairobi’s Embakasi region where the startup first conducted its piloting before starting out. The company plans to, not only expand across Kenyan counties, but also African capitals in due course.

From the 311 merchants, he says the startup has been able to process a gross merchandise value of $200,000.

Odundo explains that the risk of merchants defaulting in their model is practically non-existent due to the mutual engagements that they have, and also because it is all about the merchant’s own livelihoods.

“It would not make sense for the merchants, who are in the B2B segment to default on their source of livelihood knowing just too well that they still will need the same partners to acquire their merchandise from. This is unlike consumers, who are in the B2C segment, and buy goods just for consumption and not quite for resale,” he explains.

Onboarding these merchants to the platform, Odundo says, was initially through an e-commerce platform that Nyayomat previously ran. It was during this time that the idea of facilitating credit provision for small traders, as well as the other services that the platform now provides, were integrated in the platform.

But currently, the onboarding process for the merchants involves several steps including conducting a know-your-customer process to get a feel of how the prospective merchant runs their businesses, as well as all the proper documentation of the business. This is to guarantee the legitimacy of the business as well as the volume of the sales.

It also involves conducting a credit assessment of the merchants, just to get their credit score, which is always a key metric in virtually all credit transactions across the country.

“Through Nyayomat, you can then, as a merchant, free up your working capital as you engage with us and we engage with our partners to supply the goods that you need for your business, in our buy-now-pay-later model,” he says.

He adds: “So far, we’ve not had any defaulting by the merchants in our marketplace because we have been working with a particular sub-committee in Nairobi that helps us to know our merchants better. The merchandise that our merchants take up also acts as collateral for the credit mechanism.”

How Nyayomat Uses Blockchain

However, Nyayomat currently is in the process of developing a credit scoring mechanism of its own which will help it well identify and onboard the merchants that it works with.

The startup, which seeks $500,000 to scale up its operations, and has a commitment of $135,000 from CV VC, and a shortfall of $365,000, deploys blockchain in its operations.

“We already have blockchain technology powering several of our services in the company. We have already executed a blockchain tax system whereby we have smart transactions -executing the transaction flow in our systems- and a secure ledger of transactions maintained in a multi-blockchain environment,” Odundo said.

He explains further: “We have a chain of transactions happening both on-chain and off-chain; from when the asset provider -our partner- is listing the product, then when the merchant is applying for the product, to when they ask for the products and when the product deliveries are fulfilled, as well as when they now start making the repayments to the platform, which inturn pays the partners.”

All the chains of transactions, he tells NODO News are executed by smart contracts and the secure ledgers of these transactions are securely maintained in a multi-blockchain ecosystem.

Nyayomat, he adds, works with two public blockchain protocols, built on the Tezos and the Zilliqa platforms; an idea which he says was due to redundancy effect; just in case one of the blockchains is perhaps undergoing maintenance, and also just for risk management, if anything happens to either of the blockchains, then they have a secure record of the immediate transactions that happen in their ecosystem.

Token Economy for Small Merchants

Nyayomat, Odundo says, is open to working with both tokens and fiat investments in its operations. He notes that one of the grants that the company got from Zilliqa was in terms of tokens and not fiat. But the most immediate concern for the company is to first make their clients comfortable working with fiat before being introduced to other options.

“So far, I think we are not there yet. That’s not in the plan right now. The first concern is to educate the merchants, then slowly transition them from just fiat wallets to blockchain wallets,” he says. “I think that’s the trajectory that we are taking, whereby we first work within the fiat environment, and when they are confident enough of the partnership and how we work with them, beyond that we can establish a stablecoin for them to work with, as part of our wallet.”

Challenges that he contends with when onboarding new merchants is largely their immediate demand for solutions. Sometimes the merchants join the platform and immediately want to have the partners listed for them. But this is a process that takes a little longer than that. The process takes roughly two weeks.

Odundo tells NODO News that Nyayomat has several accomplishments that it seeks to achieve both in the short term and in the long term.

“One of our key targets is to raise $500,000 by the middle of this year. This funding will help us get further traction in the marketplace, boost our reserves, and also grow our team and extend the reach of our product. The team is currently made up of two full time members and seven contracted staff, as well as one board advisor,” he tells NODO News. “By the end of this year we want to scale up and onboard 45,000 merchants in Kenya. We also look to later get into Tanzania, Rwanda, Uganda and Ethiopia, before we expand our operations to other regions.”

-Edited by Shigeru Sato