ABA Editorial Board · Mar 2, 2026 · 10 min read
The African BNPL market is projected to grow to USD 16.8 billion by 2031. The growth projections assume that African BNPL operators can earn the same kind of margins their American and European counterparts do. Our view, shared by several founders who have built and scaled BNPL operations in African markets, is that those unit economics will not work on the continent without structural changes to the business model. Here is why.
The growth projections for African buy-now-pay-later are impressive. The Q1 2026 Africa BNPL Databook forecasts the market will grow from approximately USD 5.2 billion in 2025 to approximately USD 16.8 billion by 2031, at a compound annual growth rate above 20 percent. Lipa Later has partnered with Mastercard across four countries. Payflex dominates South African fashion retail. valU has become one of Egypt's largest consumer credit providers. CredPal integrates with Jumia at Nigerian checkout. On the surface, African BNPL looks like a growth category finding its commercial footing. Underneath the surface, however, there is a structural problem that several founders have been willing to discuss privately but that the sector's growth projections have not yet reckoned with. African BNPL does not have the retail margin economics that made BNPL work in developed markets, and without fixing that, the projected growth will come with unit economics that do not support the capital deployed.
Tobi Odukoya, the CEO of Nigerian save-now-buy-later operator CDcare, articulated the problem in an interview published by Afridigest that we believe should be required reading for anyone deploying capital into the African BNPL sector. His framing was that BNPL profitability depends on the ratio of retail margin to interest rate. In American and European markets, where retail margins on BNPL-financed goods (fashion, electronics, home goods) are typically in the 40 to 60 percent range, the ratio of retail margin to cost of funds is above one, often well above one. This means that the BNPL operator can share retail margin with the merchant, absorb interest expense on the credit extended to the consumer, and still earn a positive spread on every transaction.
In most African markets, retail margins on the same product categories are much thinner, often in the 10 to 20 percent range. Local cost of funds, by contrast, is much higher. A Nigerian BNPL operator borrowing in naira to fund its loan book pays interest rates that would be considered distressed in a developed market. A South African BNPL operator borrowing in rand pays less than a Nigerian counterpart but still pays meaningfully more than its American equivalent. When you divide thin retail margin by high cost of funds, you get a ratio below one, which means every BNPL transaction is structurally loss-making even before accounting for credit losses, operational costs, and customer acquisition expenses.
Some industry observers have argued that African BNPL unit economics will improve as markets mature, interest rates normalize, and operators achieve scale. We are skeptical. The retail margin side of the equation is determined by competitive conditions in African retail markets, which are generally not going to become more favorable to retailers in the near term. E-commerce penetration is increasing, which compresses margins further. Competition from Chinese imports keeps consumer electronics prices low, which limits markup potential. The interest rate side of the equation is tied to local monetary policy, which in most African markets is unlikely to drop to developed-market levels within the horizon of current BNPL business plans.
Practitioners who have tried to run pure BNPL operations in Nigeria, Kenya, and South Africa have all encountered the same pattern. The first year looks promising as early adopters generate transaction volume. The second year stresses the balance sheet as credit losses on the initial loan book start to hit. By the third year, the operator is either raising emergency capital, pivoting to a different business model, or unwinding the operation. The survivors are the ones who recognized the structural problem early and built around it.
Three alternative approaches have emerged, and each represents a genuine adaptation to African economic reality rather than a copy of the Klarna or Affirm playbook.
The first is embedded BNPL through larger ecosystems. Jumia plus CredPal and Easybuy, Mastercard plus Lipa Later, Safaricom M-Pesa plus EDOMx in the Faraja product all share a common structure: the BNPL capability rides on top of an existing merchant or payment relationship, which dramatically reduces customer acquisition cost and lets the larger partner cross-subsidize the credit economics. Standalone BNPL struggles to compete with embedded BNPL on either side of the unit economics equation.
The second is longer-tenor installment financing in categories with higher margins. Egypt's valU and MNT-Halan offer longer-duration financing on higher-ticket purchases like appliances and furniture, where the retail margin gives them more room to earn a spread. This is not the "pay in four" model familiar from developed markets. It is closer to traditional installment credit, repackaged with digital distribution.
The third is CDcare's save-now-buy-later model, which inverts the risk entirely. Customers save weekly or monthly toward a target item, receive delivery after paying 50 percent or more, and complete payment afterward. CDcare sold USD 6 million of goods at 10 to 15 percent gross margin with a 0.4 percent default rate and no external debt raised. That performance is only possible because the model aligns with African consumer preferences to save rather than borrow, and because it sidesteps the retail margin-to-interest rate ratio problem entirely.
African BNPL investors should stop benchmarking the sector against Klarna and Affirm and start benchmarking it against structural economic reality. Operators running traditional pay-in-four BNPL products in markets where retail margins are thin and local interest rates are high should expect to be unprofitable for the foreseeable future regardless of how fast they grow. Operators building embedded BNPL, longer-tenor installment credit, or save-now-buy-later variants have real commercial paths. The USD 16.8 billion 2031 projection will probably be achieved, but most of the value will accrue to operators who are not running the BNPL playbook that the sector currently celebrates. The ones still running the original playbook will be cautionary tales.