James Momanyi @jamomanyi
Over the past 19 months banks have slowed down lending to individuals and SMEs on the grounds that the introduction of interest rates caps effectively locked out borrowers perceived to be risky.
That banks have starved the market of credit may be true. But the institutions have increased lending tenfold to these hapless borrowers, who are considered risky for mainstream lending through various digital platforms, especially mobile phones.
According to the Central Bank of Kenya report on the ‘Impact of Interest Rate Capping on the Kenyan Economy’ released a fortnight ago, the uptake of mobile loans has continued to increase.
“The number and value of mobile loan approvals have been rising from four million in March 2015 to about nine million in June 2016,” the report said. Financial institutions target people with regular incomes either in business or employment because they can easily build a credit score that gauges the amount to be disbursed.
On the flip side, lenders fear giving loans to borrowers without proven regular income thus they impose punitive conditions because they lack borrower data to support lending decisions.
Some of this missing data include lending history, bank statements and security. Lenders rate the customer’s creditworthiness based on their past uptake of loans and repayment data available through credit reference bureaus.
But there are some people who have never taken a loan before and cannot therefore build a credit score that can allow them to get a loan. How are mainstream banks, microfinance institutions and micro mobile lenders rating the credit worthiness of these ‘risky’ borrowers?
With the strides in technology, most lenders, both in the mainstream banking institutions and the ever increasing number of mobile loans lenders (including those lending through apps) have now come up with alternative credit data to help gauge the credit worthiness of individuals seeking for loans.
Lenders are now able to go online to mine data about an individual by tracking the digital fingerprints left behind in social networks like Facebook, twitter, instagram; and e-commerce networks like Alibaba, Amazon Jumia and Kilimall.
This information can be used to evaluate an individual’s financial stability, income, and their size of professional networks. Lenders disbursing loans via mobile phones glean for information from calls and payments that customers make using their devices.
The amount of airtime and data bundles a person uses daily can also measure one’s financial stability as well as the size and strength their network of friends.
This data mining has largely been influenced by the ever increasing ownership of smartphones in Kenya, and elsewhere in the developing world. Currently in Kenya, there are more than 20 digital credit platforms that are targeting both customers with regular incomes and those with random earnings.
This credit is disbursed through mobile phone apps and mobile wallets like M-Pesa. According Century Microfinance Bank Chief Executive Office Reuben Kimani, lenders are increasingly using digital tools to rate the credit worthiness of clients.
“To assess the ability of a customer, we check their business records, M-Pesa statements and bank statements. We also do a social media background check through groups that they are usually part of,” Kimani told People Daily.
However, Kimani points out that sometimes mining this data is not a walk in the park because for instance in urban settings, most of their clients don’t have a permanent residence while on the financials, most of them don’t interact with banks and are poor in keeping business records.