Digital Sales and Inventory Data to Assess Creditworthiness

Context

Adoption of digital payment technologies among small merchants in developing countries is low, with implications for financial inclusion, profit generation and business formalization. Entrepreneurs running Micro, Small and Medium Enterprises (MSMEs) often record information about their businesses manually in paper notebooks or not at all, but these data could be useful in determining the business’ creditworthiness. The manual processes that are employed by banks and loan officers are slow and costly, and these costs are passed on to business owners in the form of higher interest rates or a lower likelihood of loan approval.

Study Design

During this pilot, researchers studied the reasons for low adoption among small businesses, as well as the perceived benefits and costs of going digital. In partnership with Banco BHD León, the team leveraged focus groups, quantitative surveys, and sales and inventory data to evaluated the use of an e-payment enabled tablet with inventory management software in corner stores in the Dominican Republic.

Results and Policy Lessons

The research team found that most small merchants believed that the technology would improve their access to credit by providing a new stream of real-time digital data on sales and inventory. Merchants also reported that they were able to better manage inventory, and they lost sales due to running out of stock at less than half the rate they did prior to adopting the new technology. However the study also revealed a number of barriers to continued use of the technology, and only half of the microentrepreneurs continued using the technology throughout the full pilot. Interviews revealed the software could be improved by featuring training for new employees, and making summary information on figures like total weekly sales easier to access.