How banks participate in rising economy

Informal employment represents 80-90 percent of the total workforce in most African countries, forming the bulk of the workforce.

Gig workers are a growing segment of the informal economy, driven by an increase in innovation and the rise in the use of digital platforms that serve as the primary channel through which gig workers find work.

Ride-hailing, distribution services, transportation, delivery, food services and medical services constitute some of the industries that within the last five years have experienced digital transformation and proliferation powered by digital platforms.

As these platforms grow and become entrenched in our daily lives, so does the population of gig workers.

This is a trend that is bound to keep growing over the next decade. While the gig economy is growing, it remains financially and socially vulnerable since access to financial security in the form of bank loans and other financial services is still fairly low.

This segment of the workforce is still severely underserved by traditional financial institutions.

Due to the nature of gig-based work, earnings are seldom structured or consistent.

This fluctuation of income makes it difficult – often impossible – for individuals to gain access to credit for both personal and business needs.

From an economic perspective, these hurdles to securing business funding restrict the ability to upscale businesses and increase contributions to the economy, which in turn negatively affects job-creation potential. From an individual perspective, poor access to finance severely impedes progress when it comes to improving quality of life and societal advancement.

This is especially problematic as a large portion of gig workers in Africa are low-income earners.

In addition to challenges in accessing loans, the credit models of traditional financial services are also not suitable for the gig economy.

Contracts are generally inflexible, have a high-interest rate (as gig workers are seen as “high risk”), include unmanageable repayment terms and other demands that do not cater to the unstructured nature of gig-based income earnings.

In fact, access to “bad credit” lines, such as those with harsh penalties, is arguably more detrimental to gig workers than no access to finance at all. — Reuters.