Financial Needs of the Gig Economy in Kenya

The gig economy has experienced rapid growth patterns in recent years, owing to convenience in flexible working schedules adopted by consumers and suppliers of labor locally and globally. To understand the trajectory of the gig economy, it is important to highlight critical historic characteristics of the ‘traditional worker’. The traditional worker is a permanent employee, pensionable and with granted stable benefits such as medical insurance. They, in retrospect, have enjoyed easier access to credit from financial institutions such as banks, microfinance institutions and saccos, because they have a perceived lower credit risk which stem from the assurance that their income is secure. In hindsight, cognizant of the patterns and trends, these financial institutions have collectively aligned their internal operations and value proposition, to capture the ‘traditional worker’ clientele on the backdrop of their payslip. Insurance companies too have developed corporate packages and life assurance schemes that have revolved around the surety of the traditional worker’s ability to pay premiums on long term contracts that could run as long as 25 years.

Notwithstanding, the traditional worker has gradually evolved from this assumed concept and has adopted other flexible appeals in his schedule, triggered by changes in the labor market and the private sector environment. A great deal of corporations have progressively experienced increase in labor costs associated with changes in legislation, that have increased corporate taxes and mandated employers to remit statutory contributions for each employee. While trade unions, have affected organizations’ appetite towards the labor market. Consequently, the labor market has been grappling with the urge of establishing a work-life balance, to take control of earning capabilities and potential, and ultimately pursue personal developments while simultaneously earning a living.

The gig economy in Kenya has taken precedence presently, owing to improved internet penetration, access to mobile and computing hardware and software and globalization. The nature of the gig economy is considered self-regulating and self-monitoring, relying substantially on short-term assignments that generate significantly higher income. The freelancer, in this instance, can undertake multiple tasks from different clients, both globally and locally however, receipt of payment is normally inconsistent as both parties’ institute higher levels of quality assurance.  This particular freelancer, consequently would not easily qualify for traditional financing unless some form of security or collateral is offered to the financial institution. This, however, does not outrightly downplay the freelancer’s ability to repay the loan. It’s just not regular as in the case of the traditional worker.

That being said, the gig sector evidently faces a number of challenges, on account of its nature and undertakings. The sector is not, in entirety, defined as a homogenous group but is largely characterized by individualism. It is in the pursuit of an individual that s/he obtains tasks that need to be fulfilled. The sector is unregulated, thus its operations disregarded and its needs neglected, more particularly amongst the financial players in the country. However, to counter this, freelancers need to form a local and global professional association that will set uniform standards that will guide and protect the online worker, their clients and auxiliary vendors. The association can pursue the legislature to enact various laws that will support the sector just as other associations such as the Kenya Bankers Association do on behalf of banks.

Futuristic Approaches/Best Approaches:

Workers in the gig economy, particularly require adequate liquidity to enable them purchase their tools of trade. Cash flow disruptions staggers growth of the gig economy and this is compounded by the fact that traditional financial products do not offer any reprieve or solution to this upcoming vibrant sector. Financial payment solutions such PayPal, Amazon, MPESA and other digital lending apps are already capturing the attention of this sector by providing solutions that allow seamless transfer and remittance of funds from all over the world. This signals to financial institutions to adopt flexible models, in order to accommodate and address the needs of the gig sector, explore opportunities while countering competitors’ advances.

Insurance companies also have a role to play in supporting the gig economy. There exists the possibility of payment defaults or breach of contract, hence vindicating this as a risk that ideally needs to be mitigated. Alleviation of this could come in the form of guarantee bonds or surety insurance contracts, duly signed by both parties before commencement of tasks, hence opening new revenue streams for the insurance sector, which has seemingly been struggling to develop new insurance products to increase penetration in an already crowded market.

General Elections

As Kenya gears towards the general election, it is paramount for those who aspire to take up leadership roles to address the needs of the gig economy. The contenders of the presidential office are yet to adequately acknowledge the rise and influence that the gig economy plays in the general economy, only confining their arguments on how to support the informal sector. It is key for the current and future governments to establish an appropriate framework that will move hand-in-hand with changes in the labor market, failure to which could lead to dwindling government’s revenue and deterioration of remittance of statutory contributions.

In conclusion, the COVID-19 pandemic catalyzed the rapid adoption of the freelancer in the general economy. This phenomenon will potentially affect critical aspects of our lives such as education, youth employability and labor relations. Failure of the financial sector to render its support to the gig economy will negatively disrupt credit lines and trigger an increase in ad hoc financial solutions while government will be forced to catch up before losing sight of the wave.

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