Buy now, pay later is an easy and effective model of financial inclusion

It's no secret that there's still a long way to go when it comes to achieving true financial inclusion in Africa. As recently as 2021, 45 per cent of people in sub-Saharan Africa didn't have access to a formal bank account.

That doesn't just make it difficult for them to save effectively, but also to access formal lines of credit.

The thing is, when most people talk about financial exclusion and the proposed solutions to it, they tend to focus on the "big" economic movers that come with financial inclusion.

A lot of attention, for example, is given to affordable home and vehicle financing and business and education loans. That's understandable too: those are all vital tools in helping people advance economically.

But financial inclusion can't be limited to those big-ticket items. It must also cover many of the day-to-day purchases that people in other markets take for granted.

We cannot, after all, talk about real financial inclusion if someone can access a business loan but still has to approach informal lenders to pay for their child's school uniforms and stationery.

It's why the rise of 'buy now, pay later' (BNPL) services are so important. These services allow people to purchase items and pay for them over a specified period, typically in instalments with low interest rates.

Unlike lay-by offerings, people are allowed to take possession of their goods immediately. While these offerings are most visible online, they're increasingly common in physical retail spaces too.

There are any number of examples of how BNPL can empower ordinary Africans by enhancing their purchasing power. Maybe it's someone needing to buy a new suit for a job interview, a promising athlete needing a new pair of running spikes as they look to secure a university scholarship, or someone needing to buy a laptop to start their side hustle.

Sometimes (as I discovered myself, when I returned to Kenya in 2017 after studying in the USA), it's just about staying connected. As I trawled the malls of Nairobi looking to buy a phone - something few of us can live without - I realised that very few stores had the option to pay off a device in installments.

It came as a stark contrast to the US, where installment plans are available almost everywhere.

But it was also a lightbulb moment that inspired the founding of Lipa Later. I realised how effective BNPL could be in the Kenyan and broader African contexts, particularly if it was adapted to the way Africans shop.

That vision was further crystallised in the early days of the business when my co-founder Michael Maina spent hours walking around malls, speaking to shoppers. Many, he found out, wanted a specific phone that was just out of reach but which they could easily pay off over a few months.

While many of us are familiar with BNPL in e-commerce contexts, we knew that launching an e-commerce-only BNPL product would have limited efficacy in an African context.

Even in a country as renowned for embracing technology as Kenya, online made up just four per cent of all retail sales in 2021 (the most recent year for which I could find figures).

But getting physical retailers on board with the concept wasn't always easy. In the early days especially, there were a lot more "no" than "yes".

We persisted because we knew that, implemented correctly, the BNPL solution we were building could be a "lifeline for a lifetime" for both our retailer and consumer customers.

As a result, today, we have a BNPL offering that works as effectively in offline physical retail settings as it does online. And because we've taken an attitude that everything about Lipa Later, from the name (Lipa is Swahili for "pay") to the technology, should be tailored for Africa, we've been able to expand beyond Kenya into Uganda and Rwanda.

While BNPL can't eliminate debt entirely, it can make a dent in it, and with nearly 60 per cent of Kenyans living in debt and similarly high numbers across many countries on the continent, its role will only become increasingly important.

Without having to resort to expensive informal lenders, customers can save more of their money or use it on things that improve their lives, rather than simply servicing debt.

- The writer is founder and CEO, Lipa Later