Unilever and Mastercard’s Jaza Duka – trying to solve the small shop credit dilemma

The life of a micro-retailer is not always easy; high uncertainty with limited resources. Access to financial institutions remains rare, and they often tap into personal savings or reach out to family members for capital. They require frequent deliveries, but with low sales mostly don’t get service – leaving many to routinely run out of stock.

Kenya’s Jaza Duka

To address some of the credit challenges micro-retailers are facing, Mastercard and Unilever launched the Jaza Duka (fill up your store) programme in Kenya. The initiative plans to digitise the supply chain for micro-retailers – allowing banks to better understand their cash flow and daily purchases.

How does it work?

Unilever’s distribution system records the purchases from individual micro- retailers, and the information is passed on to Mastercard, who analyses the data and provides it to the Kenya Commercial Bank (KCB). This enables KCB to assign a credit score and extend a low-interest credit line to qualifying small dukas or groceries.  The KCB credit is provided through a secure Mastercard digital payment solution. If a store can show weekly purchases of $50 from Unilever, they could qualify for a credit line of $120.

The credit-trap

To manage cash flow, micro retailers prefer to buy from wholesalers or distributors, who can break packages into more affordable units. These smaller units are more economical, but they don’t qualify for volume discounts and end up paying higher prices.

Micro-retail and supplier relationships often revolve around credit. Small shopkeepers are sometimes stuck in a credit-trap with one of two wholesalers. With limited negotiating power, they are unable to shop around for the best deals.

Financial institutions don’t typically work with small retailers, as they mostly lack a paper trail and credit rating. With no formal credit history and in many cases collateral, they struggle to borrow from banks. This sometimes leaves them at the mercy of informal lenders or loan sharks, who charge above-market interest rates, further eating into their razor-thin margins.

Why is Unilever a good fit for the programme?

Unilever is one of a handful of companies in Kenya with a sizable footprint at micro retail level. Research has shown that Unilever’s products contribute on average 15% of small retailers’ total sales in Kenya. This puts them in a good position to understand traditional retailer’s turnover and assess their ability to make repeat purchases.

How is the programme supported?

TechnoServe is providing shopkeepers with financial planning and inventory management training. The course also covers retail marketing techniques such as merchandising, to further increase their sales.

How many micro-retailers have joined the programme?

Launched in 2017, around 5,000 have joined in Nairobi, and the programme is targeting more than 20,000 entrepreneurs in Kenya. Enrolled stores have grown their sales by up to 20 percent. Unilever and Mastercard plan to expand the programme to other African countries and the Asian-Pacific region.

Why is out of stocks such a problem?

Stock-outs create many unhappy customers. It is a missed opportunity for small retailers who normally have limited foot traffic. The customer will either make no purchase or shop at a competitor’s grocery. For companies such as Unilever, it is a lost sale, and a missed chance to create a loyal repeat customer. It might also open the door for a competitor product.

Micro, small, and medium enterprises (MSMEs) face a $5.2 trillion funding gap, according to the IFC. Cash strapped business owners struggle to stock sufficient inventory, leaving them unable to serve customers and grow their businesses.

What are some barriers?

In most cases, large consumer goods companies are not serving micro retailers directly, but they work through distributors and wholesalers. Sometimes, distribution partners are very small, functioning as micro distributors, servicing customers in a limited geographic area.

In the past, it was often too expensive to issue a sales force with the required mobile technology and internet connectivity to service small groceries. A fully digitised supply chain with share information is still in the early stages of development – leaving many organisations in the dark.

Challenges remain even where technology is available, and companies serve micro-retailers directly. Companies’ Enterprise resource planning (ERP) software works in closed networks, and they don’t share data with financial players. Whilst these institutions could benefit from supply chain data, they don’t always have close relationships with large corporations to facilitate supply chain financing.

The benefits of a digital supply chain in emerging markets

Smartphones, mobile applications, and cloud-based software are starting to digitise supply chains in emerging markets, simplifying operational processes, and creating real-time visibility at even the smallest outlet. A digitised supply chain can analyse the trade between companies, distributors, wholesalers and retailers, creating a paper trail, and help financial institutions evaluate the creditworthiness of small groceries. Micro-retailers can build a credit history, enabling them to access working capital and other financial products. 

Distributors and wholesalers will no longer need to extend credit to micro- retailers they work with, which frees up working capital. For micro- retailers, it improves cash flow management and allows them to shop around for the best deals, not tied to any distribution partner.

For companies, a digitised supply chain enhances their knowledge of micro- retailers, creating inventory visibility, and assisting them in knowing which customers to invest in, irrespective of their size.

Podcast: Kenya’s Jaza Duka – The dilemma of the duka shop

Masters of scale – with Reid Hoffman

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