Johannesburg, 29 May 2018
Africa, the land of rich opportunities, has over 1.2 billion people, few of which have a benchmarked credit record. A large percentage of the adults, especially in low and middle income countries, lack sufficient documentation at public credit bureaus. According to the World Bank, this figure is less than 12%.
The situation lends itself to the bulk of the economy with no access to borrowed money, whilst those who can access it are subjected to exorbitant interest rates. Microfinance Institutes (MFIs) grant loans to those who can't access credit via a mainstream bank. These people are at a higher risk for defaulting a loan. To hedge this risk and cover the higher operational costs, MFIs charge on average 37% in interest and fees
MFIs, particularly in emerging markets, make decisions on granting loan applications and accompanying interest rates with limited traditional resources, such as public credit registry data, bank statements, collateral, or lending history. In the absence of robust traditional data, MFIs don't have an accurate means of establishing risk profiles, and this retards the dispensation of borrowed money.
Digital credit scoring addresses this issue. This is the process whereby an individual's credit risk profile is ascertained by leveraging alternative data sources, such as mobile usage, demographics, and e-transactions. Through the use of machine learning algorithms, digital credit scoring enables MFIs to evaluate the credit worthiness of data sparse clients. The need to be on file in public credit registries is something from the past.
With access to technology increasing, smartphones are fast becoming a ubiquitous technology, even in emerging markets. This is leveraged to gain fresh data on potential applicants. By distributing a mobile application huge amounts of data on the owner, such as their daily movements, mobile usage, and transactional data, can be collected and supplement the digital scorecard solution.
Such solutions can be extended for the credit assessment of small and medium - scale enterprises (SMSE) by further incorporating value chain data and information collected from a series of psychometrics.
Digital credit scorecards offers an efficient and standardised tool that enables lenders to expand their lending activities to previously unbanked or unfinanced markets and individuals, while limiting their risk exposure.
Contact: info@olsps.com
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