Are we there yet? Big Data and the Quest for Financial Inclusion
At financial sector conferences, you come across talk about the use and application of big data and the same question pops up – are we there yet? Are financial services’ providers applying data analytics in their daily management to streamline decision-making and improve efficiency?
We are not there yet, however the train is leaving the station so either you are on it or you might be left out on a big opportunity to more efficient ways of managing your business and accessing the new generation and a bigger variety of clients.
Using financial inclusion in relation to fintech and financial services for the under or non-bankable population became another hip reference that everyone likes to use. Thanks to mobile access to money and mobile lending, Kenya stands out with one of the highest levels of financial inclusion in the African region with approximately 70% of adult population being financially included. As much as mobile lending platforms as well as MFIs play a vital role in providing access to finance, their “financial inclusion window-dressing” may come across as a cover-up for the hefty interest rates, which leads uneducated and less aware clients into the situation when they may be listed on credit bureaus for less than minimal amounts and excluded from further financial services.
Creditinfo’s recent research on mobile money lending and the use of credit in Kenya shows that in Kenya, during 2014-2017, approximately 2’5 million (out of a population of 45 million) were listed adversely on credit bureaus, out of this, almost 400’000 were listed for amounts lesser than 2 dollars. This combined with the fact that mobile borrowers (the ones using mobile lending platforms to access quick and low value loans) having on average 6 loans, may lead to a situation where more and more people could become financially excluded due to their adverse listing or managing too many loans at the same time, without being educated on the high interest rates they are being charged. On the other hand, we must not forget that during the same period, 33 million digital loans were issued and out of those 62’8% of digital borrowers were positively listed, giving them opportunity to build their good credit profiles.
Therefore, lenders shall embrace automated solutions thanks to the use of the big data, with special focus on the use of advanced credit scoring, to enable them to lower their interest rates and be more efficient.
What can players from the financial sector and especially fintech do to get there?
- Digital Integration
The message for the financial sector is simple: start using solutions, which are already there. Data is out there (transactional data, client data, credit bureau data, alternative data as well as psychometrics), the way we analyze it and apply it requires specialized companies like Creditinfo Group to make it relevant to your business and sustainable in the long-term. In some cases, fintech lenders like mobile lending platforms embarked on data analytics with its clever ways of scoring. Some of the MFIs, which traditionally have large access to rural and unbanked populations are still struggling to enter the digital era. Developed institutions use loan origination and management software with some level of integration with various data sources, however more advanced solutions like decision engines and decision-making platforms are available. The data can be processed in a matter of seconds, making it efficient for the lender through elimination of manual errors and manual, time-consuming inputs. Secondly, compared to a few years ago, such solutions are much more available even to smaller MFIs as well as mobile lenders, through APIs and ease of integration via web based solutions. Moreover, there is no barrier in terms of high investment costs like existed some time ago, which required high subscription fees or expensive hardware purchase.
Mobile lending is becoming a synonym for financial inclusion in various parts of the developing world. However, are those mobile lenders applying credit scoring models, which are reliable and sustainable on the long-run? Furthermore, what about the creation of silos? Even if they enable borrowers to get access to seemingly easy money, are they sharing this information with others? In most cases not, and this creates data silos. Not providing valuable information to credit bureaus and data platforms does not assist borrowers in building their credit profiles, thus does not provide any advancement in their wider financial inclusion, which is based on access to a range of financial services. This is where companies like Creditinfo Group play a huge role through the provision of sustainable data analytics’ solutions and the ability to collate and store data from those credit providers for the enhancement of credit profiles of borrowers. There is tremendous need for collaboration between various fintech lenders within the data sharing concept and using reliable credit scoring algorithms. What is important while creating a credit score is not just any data and current data; historical information, predictability of models and relevant calibration on a timely basis adds to the trustworthiness of credit scores. Everyone in the industry, especially on the African continent, likes to quote a few names like Tala or Branch, but what about the hundreds of other mobile lenders- are they reliable? Are they serving the purpose or are they just a buzz and creating a bubble for a handful of investors from the developed world?
To scale-up the effects that fintech brings into financial services there is a need to create partnerships between Lenders, fintech, technical providers and donor organizations. We can see that successful stories have happened because there was donor funding involved allowing some scaling-up. In many cases, private companies like Creditinfo Group, may have great and tailored solutions with the use of various data sources, inclusive of alternative data (via scrapping mobile phones for example) or even psychometrics, however the cost of bringing them to the market and creating a significant impact on the population can only be achieved if there is strong partnership between various players.’
- Creating Awareness
In one of the recent fintech conferences in Kenya, a CEO of a leading international bank, who is also embarking on digitization quest, stated that all efforts must be customer-centered. The whole idea about the financial services sector is based on clients’ need for accessing money. Therefore, the customer is at the epicenter. Financial inclusion through fintech and fast innovations within the financial industry brings responsibility to educate and create awareness on the use of money as well. It is now time to address it and look at fintech and access to finance from a borrowers’ perspective, while the first wave of fintech and mobile lending was a craze about just being able to access new loans, the next phase will be about customer education. To offer new services and further enlarge the target market it is essential to create awareness and enable borrowers to become fully financially included.
Conclusion is – don’t reinvent the wheel and don’t overthink. The wheel has been invented and nowadays is more affordable than ever. Just use the tools available and if you don’t know what might be the best solution to your challenge.
For more information, contact the author — Agata Szydlowska.