April 28, 2020. Creditinfo Lithuania today introduced the new debtor reporting system “Creditinfo CO”. The system will give businesses the ability to learn, free of charge and in one place, how many companies are late with payments to their debtors and for what total amount starting from lock down period caused by COVID-19. The aim is to provide businesses with useful information that can help them make decisions on a more informed basis – whether to negotiate with debtors on payment terms, prepare documents for an assignment of debt, or initiate a judicial recovery process. It is also worthwhile checking what length deferments and what size trade credits are being granted to business partners.
Creation of the Creditinfo CO platform was hastened by the economic situation that COVID-19 has provoked, with one company after another facing delayed settlements. As tension over late payments grows, companies are checking their customers’ reliability more actively. The figures show that between 16 March and 15 April this year, queries in the credit bureau system increased the most, compared to the analogous period before the quarantine was declared (16 February to 15 March), among companies from the following sectors: construction and real estate (+56 percent), utilities (+44 percent), transportation (+44 percent), industry (+41 percent), and insurance (+32 percent). Given the chance to share information about debtors, in the very first week 120 companies expressed a desire to do so.
“Now businesspeople can judge more accurately whether there are objective reasons for a specific partner’s failure to settle. We hope that in all cases this will encourage closer collaboration and dialog on how companies can deal with payment problems together,” says Linas Čereška, General Manager of Creditinfo Lithuania. “On the other hand, if you see a business partner is late paying but there aren’t any partners indebted to them, we’d recommend immediately sitting down at the negotiating table and clarifying the objective reasons for the delay in settlement.”
Critical debt recovery period – up to 60 days
Mr Čereška notes that business leaders learned lessons from earlier economic crises and know well how important it is to obtain the information that is vital to a company’s survival in a timely way and to take action without delay.
“The faster information about companies with overdue debts is made public, the more informed actions other companies will be able to take,” General Manager of the credit bureau says. “Our advice is to constantly monitor the situation of one’s debtors and take legal measures on time to help recover outstanding payments.”
According to Mr Čereška, established practices in Lithuania and the world show that, in a time of crisis, when debts are not recovered within 30 days, the likelihood of obtaining settlement decreases by half, and when delays exceed 60 days, a serious risk arises of never recovering the money. Analysis of the data that Creditinfo has shows that recovery of overdue debts is currently slowest in the transportation and construction sectors, taking 52 days and 57 days respectively. Meanwhile, companies in the extractive industries, agriculture, and wholesale and retail trade, along with hotels and restaurants, are taking 40 days or more on average to cover arrears.
Publishing transparent information will strengthen the country’s financial stability
The initiative to transparently report on debtors’ situation is also supported by the Bank of Lithuania, the supervisor of the financial system. Bank of Lithuania Board Member Marius Jurgilas notes that the business community is mature enough for responsible and transparent relationships, and technologies are helping to exchange information and use it in a timely way for appropriate decisions.
“The country’s financial stability depends on each company’s behaviour in the market, so we welcome all measures that encourage businesspeople to plan operations responsibly and settle with other companies on time. The more transparent the relationships between companies are, the healthier Lithuania’s economic situation will remain and the faster we’ll deal with the difficulties that have arisen,” Mr Jurgilas says.
According to Linas Čereška, from now on, on the Creditinfo CO system, information will be shown not just about a specific company’s debts – how many companies it is indebted to and in what amount – but also about how many debtors it has and the total amount others are indebted to that company. It will be possible to see such information about any company free of charge.
Protection from dishonest businesspeople and companies maliciously failing to pay
In building the platform for exchanging information about debtors, the credit bureau, according to its General Manager, seeks to prevent non-transparent decisions by companies, where dishonest businesspeople try to take advantage of the existing situation and simply withhold payments unilaterally even though they have the ability to settle. It is also hoped that the debtor reporting system will be especially useful for small and medium businesses which, unlike big companies, usually lack qualified resources and do not have a lot of experience using financing and credit limits or recovering debts. The ability to check the financial situation of existing and future partners on an open platform will let them more accurately decide on what terms and with what companies to work. Upon request, companies can get automated notifications about new information that is added on the system.
Established in Iceland in 1997, Creditinfo Group provides credit information and risk management services around the world. As one of the fastest growing companies in its field, Creditinfo ensures access to financial information with advanced solutions for data management and analysis. In Lithuania, Creditinfo has been collecting and continually updating data since 2000 and now manages information on a portfolio of nearly 1 billion euros of debts. As of 1 April 2020, the portfolio of debts to legal entities registered in Creditinfo’s systems totalled 881 million euros, of which 399 million euros was owed by legal entities and 482 million euros by natural persons. Creditinfo actively collaborates with the World Bank and the International Finance Corporation (IFC) and is a member of the Association of Consumer Credit Information Suppliers (ACCIS) and the Business Information Industry Association (BIIA). Currently 33 Creditinfo bureaus operate on four continents.
For more information contact:
Linas Čereška, General Manager, Creditinfo Lithuania (firstname.lastname@example.org, +370 698 71177)
The current situation in Lithuania compels businesses to regard its partners with a deeper mistrust. The enterprises face challenges of their survival – how to ensure the continuity of activities, reorientate its services, and not lose the clients. Even those businesses which have a sufficient number of clients, feel worried about whether their partners are still trustworthy and will make payments on time.
As soon as the quarantine was announced, the queries about the solvency of other enterprises have increased by approximately 1.5 times. From March 16 to April 14, in comparison with the identical period of time before quarantine (February 16 – March 14), the system of credit bureau “Creditinfo” fixed the increasing number of queries from companies of the following sectors: building constructions and real estate (+56%), public utilities (+44%), transport (+44%), industry (+41%), insurance (+32%). Having been given the opportunity to share information about the debtors, 120 enterprises expressed their wish already during the first week. When the economic situation is complicated and the perspective of the enterprises’ mutual payments is bad, to preserve a high solvency ratio becomes vital. Head of credit risk assessment of “Creditinfo Lietuva” Rasa Ruseckaitė, proposes to immediately tighten the policy of credit risk control of the company and perform the following actions:
- Re-examine the clients’ portfolio more often, watch more closely the companies which fall into a high-risk group. We recommend to review and reassess the financial situation of high risk clients and the clients who must be watched at least once in a quarter. Analyze the process of the client’s making payments, how long the payments have been overdue, how the financial situation of the enterprise is changing. If you have received information about a lawsuit filed against the client, measure the risks that you may face, and consider the behavior of other creditors. If other enterprises started debts recovery in a court, sending polite reminders most probably would not be the most effective means. Taking into consideration great uncertainty, the risk appetite for credit should also be reduced. Analyze the credit limits granted to the clients and consider the possibility of a more conservative behavior regarding shortening the time for payment.
- Significant changes in business occur every day, so recognize and constantly watch the warning signs. It will be easier to assess the clients’ situation if you have a predetermined opinion of what events should be considered critical. The increasing risk can be made known by a new lawsuit regarding debt, a new asset seizure or the officially announced information about debt. However, there are some other important signals such as a change of the debtor’s address, a replacement of financier or head of enterprise, unwillingness to communicate, a change of accounting methods and others, which are often considered as not serious enough.
The client’s solvency situation having worsened, immediately prepare a specific plan of your further actions. The speed and adequacy of actions can determine the amount of your losses. Firstly, we recommend getting in touch with your debtor, discussing the present situation and scheduling of clearing the debt. Other steps can be as follow: to cancel the granted credit limits, to terminate the means of advance payments, to reconsider the conditions of agreement, and to apply means of early exaction. Moreover, estimate the possible losses and their impact on the liquidity of your company.
- Use external information about the partners. In evaluating the clients’ portfolio, it is important to use not only the existing internal information, but also to look for available external information. It can include data announced by the Centre of Registers, Social security institutions, Department of Statistics, bankruptcy administrators, State Tax Inspectorate, the National Court Administration, credit bureau and other sources. They will help receive a preliminary signal about the impending problems of the client’s solvency, even if they make payments to you on their due date thus far.
- Exchange data about the debtors. Exchanging data will help you recover debts since the debtor who was announced in the credit bureau, will have restrictions on receiving loans, making agreements of communication, Internet supply and other agreements with deferred payments. The debtors of your enterprise will become known to other participants of the credit bureau – financial, telco’s, insurance companies and other Lithuanian enterprises which estimate their clients’ solvency in the credit bureau. And the debtors’ awareness that information about them will become public in the debtors’ data system, can be sufficient motivation to fulfil their obligations.
- Monitor how the solvency of your own company appears in public. Seeking to maintain a high level of solvency of your enterprise and business partners’ trust, it is important to observe not only the indicators of your clients’ solvency and riskiness, but also the public image of your own financial situation. To feel secure under the conditions of uncertainty, the enterprises quite often exaggerate the credit risk and thus take strict precautionary measures – without warning their partners, they share their debts with the credit bureau system and appeal to the court. Do not wait until the creditors are the first to inform about the debts and their actions. Using the monitoring measures available in the market, be the first to learn about the problems of your solvency and react instantly to impending threats to your business. It is especially important not to miss the unpaid bills due to inconveniences of remote style of work or simply through inadvertence. And having learned about a new debt, take actions with no delays.
- If necessary, reorientate the company activity. Communicating actively with the existing partners, discussing with them and reacting to their needs, you can discover new niches in business. There are numerous examples in the market. Alcohol industry companies started to produce disinfectants, cleaning companies began to provide disinfection services, the fashion house sows masks, and a great number of businesses have moved to online serving. Be bold and creative. The present conditions are extremely favorable for new business directions and even experiments. If the number of clients and orders has decreased, turn to your current clients, and think about the untapped potential. Identify low risk clients and give them a maximum of attention, consider a wider range of cooperation possibilities, and react to changing needs.
Rasa Ruseckaitė – Head of Credit Risk Assessment, Creditinfo Lietuva
Ieva Kutkaitė – Marketing Manager, Creditinfo Lietuva (Editor)
A political and economic vision
Last October, King Mohammed VI of Morocco made a speech to mark the beginning of the new session of Parliament. In the yearly address which traditionally signals the general policy direction for the next 12 months, he called on banks and financial institutions to play “a greater role” in the country’s development. He specifically referred to “simplifying and facilitating access to loans…. and financing the creation of small and medium sized enterprises.”
Then, on 19 November 2019, King Mohammed VI received Chakib Benmoussa, tasking him with the leadership of the new “Special Commission on Development”. Composed by businesspeople, former government officials, civil servants, and civil society members, Benmoussa’s job is to conceive and implement a new development plan, specifically targeting critical areas such as youth unemployment, as well as regional and income disparities.
Finally, in the end of January 2020, Morocco released a plan that structures the country’s approach to SME financing. As part of this plan, interest rates on loans will be capped at 2% in urban areas, and 1.75% in rural areas, and an envelope of MAD 6 billion (US$ 620 million) will be made available over three years. Existing SME loans will be refinanced at a preferential rate of 1.25%, 100 base points lower than the current benchmarking interest rate. This last was only the latest stage in a large, concerted push to put financing at the front of economic development efforts.
These three events should of course not be taken in isolation. They are three prongs of the same strategy. The direct allusion to “access to loans” and “financing” is an explicit and major recognition of the power and ground-breaking role financial inclusion has in spurring development. By definition, it is especially relevant in involving sectors of the population that would otherwise not have access to financial services. These segments include women, younger generations, and the rural population, which in Morocco stands at about 35% of the total and where socio-economic indicators are less performant. According to the Doing Business Index, banks, MFIs and other credit institutions in Morocco only have data on 31.6% of citizens, meaning the remaining share are unbanked or part of the “informal” sector. They are a particular target of financial inclusion programs.
According to World Bank Findex Data, in Morocco informal financing demand stands at 49% of formal demand, the second highest proportion in the region. The total financing need of the informal sector is over US$ 21 billion. The financial inclusion gender gap in Morocco is 25% and is increasing. The MSME financing gap is US$ 13 billion for female owned enterprises and US$ 24 billion for male owned enterprises. Morocco has a 29% banking rate compared to a much higher regional average 44%. It is even lower for women, at 17%. Its GINI coefficient, a measure of inequality from 0-1 where 1 is maximum inequality, is estimated at around 0.4, far above its neighbors.
These numbers briefly resume a structural weakness: financial gaps are significant, with even greater divides when gender and regional differences are taken into account. And while Morocco registers economic growth, it is not evenly distributed. It is a major socio-economic weakness which is an existential test. The data serves as evidence that the SME financing scheme was not only necessary, it was urgent, and even more action is needed.
While Morocco has some vulnerabilities, they are not all absolute, and some are even opportunities. For example, by mid-2019, mobile internet accounted for around 93% of all internet connections. The combination of youth and technology usually signals the existence of an exploitable space for innovation. Surfing this trend, mobile provider Inwi launched Morocco’s first mobile payment system, Inwi Money in September 2019. By January 2020 it had 140,000 users, with the company expecting 1 million by 2021 and Bank Al-Maghrib (the Central Bank) forecasting 6 million for the sector by 2024.
With the similar objective of covering the financially excluded, in 2010, Al – Barid bank was launched, exploiting the capillary extension of the national postal network to reach more remote and rural areas. It is a pragmatic recognition that while innovative methods retain their power, demographic realities enforce their limitations. Al-Barid has over 1800 branches, of which 1200 in rural areas, and has a stated mission of “facilitating access to financial services and increasing the banking rate in Morocco”.
Furthermore, Morocco has two private credit bureaus, making it a leader in its region in terms of sharing of credit information.
The SME funding scheme, along with these parallel actions, shows that the socio-economic problems have at least been diagnosed, and that indicatively, the appropriate cure has been proposed. It also underlines that there is buy-in from the private sector to accelerate horizontal financial inclusion. The personal intervention of the King on this theme underlines the policy importance given to it. Lower rates, loan refinancing, along with communication and an awareness campaign will all go a great length in achieving the stated goals.
A step further
Two examples of innovative solutions that would catalyze access to finance are loan automation and “psychometrics”. The world of SME lending is often confronted with a paradox: while SME loans are traditionally smaller than average business loans and theoretically represent less exposure for banks, their relatively negligible size makes it unprofitable for banks to dedicate resources to their management. Automation software would resolve this conundrum: allowing for a uniform, centralized, quick and error free handling of loans, banks would have higher returns and lower costs, while SMEs would have more access to loans. Platforms such as these would handle the loan process from inquiry until recommendation, eliminating manual review as well as paperwork, and leaving the final decision to the underwriter.
Psychometrics is a second example of how groundbreaking technology can dramatically accelerate financial inclusion. Individuals who take out loans to fund their SME activity face yet another seemingly unsolvable vicious cycle. How to build a credit history for when one completely lacks one, with banks often reluctant to expose themselves to the perceived risk of lending to the unbanked? While not everyone has a credit history, everyone has a personality. Psychometrics builds a risk profile based on personality traits and emotional reactions analyzed as a result of expert built and approved psychological tests. A 3-5-minute quiz testing notions such as maturity, responsibility, the concept of “limits”, feelings about the future and self-perception suffices to accurately map these traits and expand them into models for consumer and SME risk prediction. These then are integrated into lending systems to expand customer bases. With additional risk profiles, lending can increase.
Morocco has been at the forefront in promoting financial inclusion, using new technologies as well as traditional methods, and highlights the complementarity between pursuing noble goals such as financially empowering-low income segments with profitability for traditional and non-traditional lenders. Of course, the next step is to introduce the most advanced solutions to truly achieve universal coverage and give a chance to those who despite all formal efforts remain unserved, underserved, or still part of the informal sector. In an economy dependent on sectors particularly vulnerable to external shocks, like tourism and agriculture, a robust SME ecosystem would only increase systemic resilience.
Global Consultant, Creditinfo Group.
The rapid spread of the Coronavirus is impacting economic growth and market volatility is increasing thus impacting the industry through weakening investment returns and potentially adverse impact on the capital position of financial institutions around the world. A sustained economic slowdown triggered by the outbreak will put negative pressure on revenues and lead to a material increase in credit risk and a potential spike in claims including for health, credit and event cancellation insurance.
Credit Bureaus’ data can provide valuable insights on the state of lending industry, which is tightly linked to the country’s economy as a whole. This data can also help to identify trends and market shifts at the early stage so, vigilant market players can better prepare themselves for the upcoming storm. Creditinfo has done an analysis of credit bureau inquiries data in over 15 markets, including Africa, Eastern Europe, Caribbean and others. The results proved to be interesting. While most markets still show enviable resilience in adverse conditions, some have started to experience serious trouble. The number of bureau inquiries dropped by more than 30% in the second half of March, signaling serious shrinking of lending, which is not explained by seasonality. While the shrinking of lending is understandable under current circumstances –lenders tighten up credit underwriting to reduce risk exposure in the face of upcoming defaults. It is surprising to find such significant difference between countries that are facing similar challenges.
Why is lending in some countries still stable, whereas in others, the volumes are plummeting? In order to dig out reasons, we first need to understand dominant operational models that are utilized by lenders in the troubled and the resilient markets. The most striking difference is in development level of remote banking channels. For example, in Kyrgyzstan, one of the markets that has suffered the most, lenders are required to get written consent from customers in order to access their credit bureau history or simply pass their data over to the bureau. In other developing countries, e.g. Jamaica, borrowers must open banking account in order to be able to get a loan, which requires facial verification of person’s identity, which means that customer must physically visit the bank’s office to pass the onboarding procedure.
Whenever regulations require physical presence of customers it limits development of digital banking channels, especially online lending. This in turn leaves lenders vulnerable to changes in consumer’s behaviors like what we are currently observing. Under the COVID-19 crisis, many people choose to stay at home and limit personal interactions. Governments are shutting down restaurants and shops and require companies to let their employees work from home. Offline businesses are experiencing pressure like never before and lenders are no exception. How can Bank provide a loan to a customer who is not willing to risk visiting bank’s office to pass KYC procedures or provide credit history consent? Such requirements now become a real driver of lending decline.
In those countries where remote onboarding is a common practice things look much more optimistic. For example, in Kenya and Tanzania there are many purely digital lenders that provide loans through mobile apps or websites. In these countries we do not observe significant change in number of credit bureau inquiries, a good sign of stable volumes of disbursements. People still want to borrow money and buy goods even if they stay at home.
Digital channels not only enable Lenders to seamlessly onboard new customers but also efficiently manage relations with existing ones.; for example, offering top-ups to reliable borrowers or restructure debts of those with financial trouble. The latter can become a critical tool in helping people who were severely hurt by the current crisis.
It is too early to draw strong conclusions. Most states have just started taking serious measures only a few weeks ago and the effects are yet to come. Creditinfo will continue to closely monitor the situation and provide analysis of the trends and recommendations.
Senior Business Consultant, Creditinfo Group.
The quality of predictive algorithms plays a crucial role in Creditinfo operations. We strive to help our Clients perform efficient credit decisions through smart and innovative use of data.
Our operations are spread across numerous territories in five continents and many of our countries have lived through challenging periods before. This has allowed Creditinfo to aggregate an invaluable experience of risk management in a crisis. Each crisis poses unique challenges and sees different government responses. However, amidst all uncertainties we have numerous times come to the following conclusions:
1. Credit Bureau Scorecards are behavioral in nature and thus they promptly adjust to the changing economic environment.
Average Credit Bureau Score is higher in an expansion phase than it is in a recession.
2. Scorecards developed by Creditinfo continue to rank order credit risk during a recession.
Understandably, observed default rates are likely to increase across the full spectrum of scores. In other words, we are typically seeing that all customers become riskier.
Scorecards continue to rank from the highest risk at the lowest scores to the lowest risk at the highest scores. This is because Creditinfo’s model development methodology pays a significant attention to the interpretability of trends utilized in the predictive algorithms. Furthermore, we validate each developed scorecard against models that we have created historically in similar projects. Such qualitative measures help to capture causal relationships and thus ensure that our scorecards perform well through all parts of the economic cycle.
3. It is necessary for lenders to change their cut-off scores to higher values and make other score-driven policies more conservative to retain the quality of the portfolio and compensate for the increased risks.
This can be done based on expert judgement or economic impact analysis and affect either all customers or just specific industries that are expected to be hit the most by the crisis. Lenders should not neglect increased correlation between Probability of Default and Loss Given Default that is observed in a recession. Furthermore, financial institutions should review limit assignment policies. This is critical in an environment where incomes are vulnerable to reductions.
4. Where regulators and governments are providing assistance to borrowers or asking the lenders to do so, we are working closely with the data providers to ensure that these cases are identified and have a minimum impact on the scores.
The data provided to the Creditinfo database will incorporate the updated agreements with payment holidays and other short-term measures, which in turn, will be reflected in the scores. For more details on the specifics of each market please contact your local Credit Bureau.
We are confident that Credit Bureau Scorecards remain an extremely valuable tool at your disposal. It is necessary to review score-driven policies to ensure that this tool continues being optimally used.
Creditinfo is monitoring the outbreak of COVID-19 and its effects on businesses and individuals. We will track markets dynamics using the wealth of Credit Bureau data and provide proactive guidance to our Clients through advanced analytics, consultancy and Benchmarking reports.
Together we will get through the storm!
More questions on we can to support you in managing your limits and cut-offs during these challenging times?
Get in touch! Email: email@example.com
In these troubled times, credit providers are searching for actions to take to protect themselves from the worst of the economic storm. Many different options are available however what is often overlooked is the critical need for having accurate and timely visibility on your loan portfolio. This can be the difference between a defaulted credit contract or a recovery.
The unique situation the world faces is a significant reduction in economic activity occurring at the same time globally. The economic effects of the pandemic likely be severe and it is not an exaggeration to suggest that the Financial Sector faces its greatest challenge perhaps ever, if not then certainly since the 2008 financial crisis.
Credit providers face the twin challenges of worsening repayment performance on existing credits and greater risk in issuing new credit. With unemployment rising and many businesses facing severe financial difficulties, it is to be expected that there will be an imminent and severe impact on the NPLs of lenders.
In large sections of the global economy financial difficulties are already being faced by consumers, entrepreneurs, MSME and Corporates alike. A wave of layoffs is underway in the areas worst affected by the outbreak. As no country is completely working in isolation, the effects are already being felt on a global scale. Creditinfo has already observed in most markets that the number of loans disbursed are decreasing rapidly coupled with a rise in missed due payment, a clear early warning of a forthcoming rise in default levels.
In these troubled times, credit providers are searching for actions to take to protect themselves from the worst of the economic storm. With the enforced closure of bank branches, the movement towards online and application-based banking will undoubtedly be given a boost in the medium to long term. However, the most valuable step that lenders can take immediately is to increase their visibility on the performance of their portfolios.
- Informed decisions on credit risk policies adjustments
- Informed decisions on collections strategies adjustments
- Targeted actions to take place making sure lenders resources are focused in on where it matters most.
- Lenders to receive advanced warnings on changes to their portfolio
Having accurate and timely visibility and can be the difference between a defaulted credit contract or a recovery.
Gaining visibility of your internal credit portfolio performance is relatively straightforward. All successful lenders will have implemented systems to measure and monitor their loan book performance.
However, this can only logically provide part of the overall picture. The part of their client’s overall credit history provided by that lender. What is missing and what is crucial in times of economic stress is the ability to view all market activity of your clients. For if a client is suffering financial distress elsewhere in the market then there is a high probability they will soon exhibit distress with you.
This is where Creditinfo is able to assist you through our Monitoring and Alert solution. A straightforward tool for proactively providing notifications whenever one of your clients records a significant event on their credit file. So, for example, you will learn when your client:
- Misses a repayment elsewhere
- Has overdue amounts throughout the market over a certain level
- Reaches a certain level of credit exposure in the market
- Enquiries for credit elsewhere
- Takes out credit elsewhere
The Monitoring tool can be activated within minutes and will ensure a stream of alerts is sent to your risk team as and when they are generated. Armed with this information lenders can ensure early engagement for at-risk customers and help teams rapidly focus their pre-delinquency efforts. Efforts such as fast-tracking collections actions, preparing payment plans or reducing exposures to that client. With knowledge comes options and the ability to make better decisions.
The mantra saying that “knowledge is power” has never been more true as it enables you to effectively monitor your clients’ performance across the market. This should be the very first step in preparing and defending yourself against the economic downturn.
Ben Riley, Global Consultant at Creditinfo Group
András Horvath, Head of Product Management at Creditinfo Group
Never Has There Been Stronger Evidence for Mobile Loans in West African Economic and Monetary Union region
With many countries in the West African Economic and Monetary Union (WAEMU) region in lockdown, bank branches empty and movement constrained; the case for a true, robust mobile lending ecosystem is stronger than ever. In global markets where mobile lending is nascent or inexistent, and the credit market is relegated to physical interaction between underwriter and customer, physical confinement and countrywide lockdowns are the equivalent of death sentences. Credit markets are frozen because critical communication is impossible. On the other hand, where digital wallets and e-money are common, no such barriers exist.
In the WAEMU region, many initiatives are already in place. MoMo Kash, a mobile money solution by MTN in Côte d’Ivoire has over 5.000.000 subscribers and specifically targets ‘financially vulnerable’ segments of the population. It has a similar structure in Benin. Orange Bank will launch in Côte d’Ivoire this year. Other solutions such as Moov show that the seeds have been planted and are ready to grow. Growth has been incentivized by ‘healthy’ competition and a well-designed regulatory environment. In addition to mobile lending, successes such as Creditinfo Kenya underscore the importance of having a strong and functioning Credit Bureau platform to prevent over lending from responsible lenders, as well as its complementarity with a vibrant e-money ecosystem. While Côte d’Ivoire leads the way, it is high time for the rest of West Africa to embrace such transformative solutions.
Nevertheless, while there are many positives, there are still key steps to be taken. One fundamental obstacle that needs to be removed is the difficulty of obtaining customer consent digitally or online. Comprehensive digital onboarding is important in normal times but critical in a crisis. It enables rural communities far from bank branches to take advantage of access to finance. It also prevents overcrowding at bank branches for small, short term loans that would otherwise be financially unviable for banks. It reduces the costs, errors, and subjectivity that were once structural components of human underwriting. In a crisis like this, with people stuck at home, digital onboarding and disbursement can be completed in a few clicks, pumping ‘real’ money into the economy, keeping families afloat, and allowing bills to be paid. None of this is possible if a sole trader must physically sign a form at a bank branch far from his home. Therefore, digital consent is the crucial next step in transforming the lending industry. This must be coupled with a mandatory bureau inquiry for mobile loans, to avoid the phenomenon of high default rates observed so far. To this end, Creditinfo have planned to launch a mobile score which will be ideally suited for risk analysis. The technology and infrastructure are not only a commercial, but an economic imperative as well, and there is a need for a revolution in the region.
Global Consultant at Creditinfo Group