How Kudi is restoring confidence in informal savings in Nigeria
Thrift collections in the informal sector often happen outside the formal legal and financial systems that currently exist in Nigeria. However, the lack of a recognized structure in the informal sector is not a limit on its potential. According to the IMF, the informal sector in Nigeria accounted for approximately 65% of the National GDP in 2017.
Thrift collections business is a micro-banking model that allows people to save money in small amounts on a daily, weekly, or monthly basis through the help of a collector which could either be an individual or an organization.
This informal banking system operates primarily on allegiance and trust between the savers and the collector. That trust, however, has been broken many times without consequences. Despite this, there is still a high demand within the informal sector for this kind of savings model.
Cash-driven economy
Traders, artisans, etc. who predominantly make up the informal economy operate in a highly cash-driven environment. They receive payments for goods or services provided in cash and that cash is used for different purposes; to restock or invest back into their business, to buy food to eat, clothes for their back, to take care of their loved ones, and so on. In this simple cycle of first receiving and then spending the money, there has been no need to keep this money electronically either for saving or for future spending because the lifecycle of the cash in their hands is very short.
The difficulties of owning and operating a bank account
The financial system in Nigeria does not cater effectively to the financial needs of the people who operate in this sector. At the top of this limitation is the inconvenience of depositing and withdrawing money. These traders simply do not have the luxury of leaving their shops or stalls as their business is heavily dependent on their availability to attend to their customers any time they show up. When you compare this to the option of having a collector come around to take up the money for you, it’s a no brainer for these traders to own or use the formal banking system.
According to recent statistics about the Nigerian adult population, over 60 Million of them do not own a bank account; of these number, 23% of them think banks are too far. It is obvious that this model works for them, that is why they’ve stuck with it despite the risks involved.
What difference is Kudi Making?
In February 2020, Kudi launched its Savings company, KudiSave to help solve the trust problem that exists with saving money in the informal sector. Today, KudiSave exists in twenty major markets across Lagos serving thousands of traders who trust them with their money.
Using Technology to Achieve Transparency
A major challenge in the thrift collections model has been the inability of savers to know how much they have saved per time. With KudiSave, that is no longer a problem. Through a mobile application that allows KudiSave collectors to enter the amount saved against a customer’s name, the customer immediately gets an SMS alert confirming his cash deposit in real-time. Not just that, with each SMS alert, the customer can see the total amount he has saved since inception.
Technology is about simplifying complex processes and enhancing human potential. That’s exactly what Kudi is doing through KudiSave in the informal savings system in Nigeria.
Learn more about KudiSave.
