In a notable departure from conventional payment norms, Kenya’s economy is undergoing a significant transition towards Western-style payment systems for its informal sector workforce, often referred to as blue-collar workers.
This shift aims to grant workers the flexibility of receiving compensation for each day they work, as opposed to the traditional practice of monthly payouts. This transformation holds the potential to alleviate financial stress and reshape business dynamics within the informal sector.
Until now, blue-collar workers in Kenya endured the challenge of waiting until the end of the month to receive their wages. This delay often pushed them to seek loans to cover essential expenses such as school fees. Payroll solution providers argue that this practice has contributed to a cycle of debt for these workers.
A pioneering solution has emerged as a result of a collaboration between SeamlessHR and the Melinda Gates Foundation. This innovative model allows workers to receive payment for the days they have worked, offering a more immediate and accessible compensation system.
Industry experts believe that this change could not only boost worker satisfaction and efficiency but also enable small businesses to better manage their workforce and establish financial credibility for obtaining loans.
Vimal Shah, CEO of Bidco Kenya, emphasized the challenges faced by informal sector workers, who often lack the institutional backing required for accessing loans from traditional financial institutions.
Despite constituting a substantial 83 percent of the labor force, these workers have historically faced hurdles in obtaining formal credit from banks due to the absence of collateral.
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The prevalence of the issue is highlighted by the Kenya National Bureau of Statistics, which reveals that more than 83 percent of the country’s workforce is employed in the informal sector.
Despite the potential of this sector, there has been a gradual adoption of technology, with a significant number of Kenyan enterprises still relying on manual processes for human resource management, even amidst the global push for digitalization.
In addition, the Kenya Public Policy Research and Analysis (KIPPRA) estimates that approximately 7.4 million Small and Medium-sized Enterprises (SMEs) in Kenya struggle with human resource management.
Timely compensation is crucial, as it not only ensures the welfare of employees but also enhances their motivation and productivity.
Wage data from Kenya paints a telling picture of the current scenario. In 2021, merely 3 percent of formally employed individuals received a monthly salary of Ksh100,000 or more. Meanwhile, a substantial 70 percent of legally employed workers earned between Ksh25,000 and Ksh100,000 per month.
As Kenya embraces this shift towards modernizing payment practices and workforce management, it signifies a recognition of the vital role played by the informal sector.
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By leveraging technology to bridge financial gaps, the country takes a step towards a more inclusive and prosperous economy, where all segments of the workforce contribute to and benefit from its growth.
