Africa’s informal economy is vast, yet much of its economic activity remains unseen by artificial intelligence systems that depend on formal records. This gap poses a challenge for financial inclusion, especially as digital tools increasingly shape how services are delivered. However, progress is being made where financial institutions are shifting their focus to alternative data sources as a core method for understanding economic behavior. n nRather than relying solely on traditional financial histories, banks and fintechs are now analyzing mobile transactions, savings group participation, micro-payment patterns, and movement data to assess creditworthiness. These non-traditional indicators often reflect real economic activity more accurately than formal documentation, particularly for individuals and small businesses operating outside regulated systems. By integrating such insights, lenders can design financial products that align with how people actually manage money. n nIn sub-Saharan Africa, over 80% of employment falls within the informal sector, and nearly 90% of consumer transactions occur in cash. In Kenya alone, more than 15 million people earn a living through informal entrepreneurship, with a significant portion being young adults and women. Despite lacking formal records, this segment contributes roughly a quarter of the country’s GDP and employs significantly more individuals than the formal economy. Their economic impact is substantial, yet they remain largely excluded from mainstream financial services due to outdated risk assessment models. n nHowever, lived experience generates its own form of data. A street vendor tracks customer reliability through consistent payments over time. A motorcycle taxi driver in Kampala adjusts routes based on recurring traffic flows before dawn, long before any app detects the trend. Community savings groups evaluate trust through months of contributions and responses during crises. Mobile money agents, processing hundreds of small transfers daily, develop an intuitive sense of which users operate sustainably. These informal systems already function as sophisticated networks of financial insight. n nThe key lesson is that effective innovation must be rooted in human realities. Financial institutions are increasingly recognizing this, moving toward models that treat alternative signals as primary intelligence rather than supplementary inputs. Digital platforms now capture transaction histories, airtime top-ups, repayment behaviors, and supply chain cycles, forming digital financial identities that carry weight in lending decisions. With these identities, adaptive credit frameworks and community-based scoring systems are being used to offer microloans that help small entrepreneurs manage inventory and stabilize income. n nSuch initiatives are having measurable impacts on local economies, supporting micro-retail networks that sustain jobs and household finances in urban and semi-urban areas. Yet no single organization can achieve broad reach alone. Collaborative ecosystems—combining mobile banking providers, agent networks, and fintech innovators—are proving essential in embedding financial services into underserved regions. One example is Wezesha Stock in Kenya, a joint effort between Absa Bank and a local technology firm. It enables fast-moving consumer goods distributors and small shop owners to access automated stock financing, even without formal paperwork. This ensures consistent product availability and smoother cash flow for businesses that would otherwise struggle to secure credit. n nAs more economic activity moves into digital spaces, the systems built around it will play a crucial role in shaping Africa’s financial future. The integration of informal participants into formal financial structures is creating new pathways for visibility, access, and resilience—transforming how economies recognize and support those long operating beyond their view. n— news from The World Economic Forum
