SMEs in Africa to benefit as lenders tap mobile technology

Finca, a US microfinance organisation, and First Access, a New York-based data analytics company, have formed a partnership to start making loans over east Africa using credit scores derived from mobile phone data.

High quality global journalism requires investment. Please share this article with others using the link below, do not cut & paste the article. This kind of uncollateralised lending has already started to transform Kenya’s micro, small and medium enterprises (MSMEs) sector. Hundreds of thousands of loans worth more than $150m have been issued since March 2015 when Kenya Commercial Bank, the country’s largest bank, and M-Pesa, the mobile money platform of Safaricom, the dominant telecoms company, began collaborating.

The vast majority of borrowers were previously considered uncreditworthy because of their lack of credit history and access to financial services. However, KCB-Mpesa accepts about 80 per cent of applicants, with an average loan size of Ks4,000 ($40) and a default rate of just under 2 per cent.

“It’s much more efficient and accurate than the old system and we’re seeing much earlier repayments,” said Joshua Oigara, KCB chief executive.

Growth is proving exponential. “Every second a new loan is issued, and we’re only a year into this service,” said Bob Collymore, chief executive of Safaricom.

High quality global journalism requires investment. Please share this article with others using the link below, do not cut & paste the article. Now Finca, which serves 1.8m people in 23 countries, said it would roll out this kind of lending in six African countries by the end of the year having completed a pilot study in Tanzania.

High quality global journalism requires investment. Please share this article with others using the link below, do not cut & paste the article. Andree Simon, co-chief executive of Finca Microfinance Holding Company, said the partnership will give the organisation “more objective information to form a credit recommendation and more time to improve the quality of our relationship with our clients”.

Shivani Siroya, chief executive of InVenture, a US start-up that launched its Mkopo Rahisi loan service via an Android app in March 2014, said it took 20 seconds to scan someone’s phone and determine whether they were creditworthy.

Like the other providers, InVenture is using increasingly detailed data to make credit decisions. For example, the Santa Monica-based company found that if at least 40 per cent of an applicant’s contacts were organised with both first and second names they were 16 times more likely to repay on time.