Last year, I sat huddled with Esther in the back of her dark market stall. The walls were lined floor to ceiling with second hand bras for sale, leaving only a small space for us to sit and chat. Esther was coming through a rough few years. Her husband unexpectedly and quickly died from meningitis. Then she found herself very sick and unable to work for three months. In that period, she exhausted much of her cash savings and was becoming increasingly stressed about how to revive her business and pay school fees when she was struck with another surprise.
Like many Kenyans hoping to one day own land, several years before, she had pooled resources with a group of friends to buy a large plot that could be subdivided. They were told the land was KSh 1 million. Esther paid KSh 50,000 for her portion. The others also paid, and most moved onto their new plots. But then they got a letter from the owner. The broker the group had paid only remitted KSh 400,000 of the KSh 1 million he collected. Now, some years later, the owner was selling the land for KSh 2 million. Either they were to pay the difference of KSh 1.6 million or move, abandoning their plots. If they moved, the only way they could seek compensation for their loss was to fight the broker, who was now in prison.
Esther was supposed to come up with another KSh 80,000 to keep her land. But at the same time, the new County Council was asking vendors like her to buy business premises in a market of new stalls being built by the government. They threatened to tear down the old structures where Esther was working. Esther begged the landowner for time while she turned over as many rounds of stock as she could, building up her savings. Eventually, she decided to top up and buy the land, but keep her informal market stall. If she hadn’t been cheated by the dishonest broker, she could have both a formal plot for her house and a formal market stall, each potentially sellable for significant returns if she ever decided to close her business.
One hopes her land transaction this time is legitimate, but it’s difficult to know for sure. Far too often, the assets of the poor (and in fact, also the rich) are put at risk through an array of uncertain transactions. Land and vehicle registries are meant (among other things) to reduce risk in these kinds of transactions, but the land registry is incomplete. It is frequently reported that employees in these government departments are complicit in title fraud and property theft, reducing the utility of the registries. In one notorious case last year, local media uncovered that a former president had sold the same piece of high-value property to three separate buyers. How does the little guy—whose purchase of an asset may represent years of saving and significant borrowing—stand a chance?
The lack of trust in the marketplace causes all kinds of inefficiencies. E-commerce, for example, is struggling to take off without mechanisms to ensure trust between trading partners. Needing to do business with known parties and to transact in person means higher transaction costs for all and a more limited, less competitive trading universe that keeps prices unduly inflated.
Hearing story after story like Esther’s, I got an idea. What if we tracked the trading history—the character—of trading partners rather than the history of assets themselves to reduce risk in the marketplace? On a single platform, we could verify the identities of registered buyers and sellers, conducting further know your customer (KYC) verification on larger scale merchants. Each sale could be registered as an e-agreement, and disputes lodged against those agreements in a way that is visible to all future trading partners. The solution discourages fraudulent behavior by making it public, jeopardizing future trade opportunities. It also gives wounded parties an avenue for recourse.
In the second half of 2016, BFA experimented with this possible solution. We conducted research with a wide range of buyers and sellers and worked with a local fintech company to build a prototype web and phone-based application to test the value proposition for such a system. In the process, we learned a few important things:
- There is strong demand from consumers for such a system. Consumers are eager to reduce their risk of fraud from merchants selling fake and stolen goods and failing to deliver after a purchase. They want to be able to remotely assess merchants’ credibility before a purchase.
- There is also strong demand from sellers and merchants of high value goods to demonstrate credibility and thus differentiate themselves from competitors. Sellers also fear being defrauded by customers and would welcome an opportunity to check potential buyers’ backgrounds before meeting them offsite, especially for electronics and vehicle transactions.
- There seem to be extensive use cases for this kind of platform for vehicle sales (especially when credibility scores are listed alongside online ads on websites like Cheki and OLX), electronics (again, mostly linked to online advertising and sales), land purchases, and building materials. From our customer research, sales of motorbikes and livestock appeared to be less risk-prone.
- Merchants appear willing to pay for a subscription service that keeps them active on the platform and buyers are willing to pay to register new e-agreements on a tiered basis depending on the nature and value of the good being purchased.
So, can there be an app for trust? It appears to be a resounding “Yes.” But like so many innovations, having the perfect app is not enough. Operations around the product roll out are key. In a networked solution like this, one major challenge will be getting the right buyers and sellers simultaneously using the product and trading with one another. Whether this idea will become a reality in Kenya depends on whether the right partner is able to take on that challenge and invest in bringing the concept to life.