In previous articles, we’ve talked about the benefits of mobile money accounts. The unbanked use their telcos and/or a third party to move money to friends, families, and businesses. But what if a farmer in Tanzania wants to build a barn or expand a small business? That’s where mobile credit scoring comes in.
Before I discuss how mobile credit scoring works, consider the financial and mobile ecosystems worldwide:
- Banks and other lenders in developed countries rely on credit bureaus and scores based on a consumer’s income, credit lines, loan repayment history, and other factors. However, most of the two billion unbanked people who live in developing countries don’t have credit scores. They’re at the “bottom of the pyramid,” hidden from lenders. They are financial nomads without “digital footprints.”
- 60% of people in developing countries lack Web access. In South Asia, for example, less than one in seven people has online access. Even fewer use social networks or e-commerce sites. Only 10% of people in eight Sub-Saharan countries have verifiable online financial data.
- The good news! 90% of people, including those in emerging markets, have mobile phones. And each cell phone has a unique phone number. And MNO’s (mobile number operators) have phone call and text records from each of those phones. Calls and SMS messages easily generate terabytes of data. Probably more data than your credit bureau generates on you.
- What if there were a way to assess credit risk based on that data? A magic mix that accurately predicts loan payback? Mobile credit scoring companies have done it.
First let’s look at the key players.
MNO’s, Analytics Companies, Lenders, Customers
- The MNO’s own customer phone data; so operators must first agree to share call and transaction detail records (CDR’s and TDR’s). Some MNO’s may become lenders themselves, making it less likely they’ll share customer data with competitors. Some regions also pose challenges. In Indonesia, for instance, five mobile operators must all agree to cooperate for data generation.
- Financial institutions, banks or credit card companies, underwrite the loans. Financial institutions benefit from lower loan losses and increased revenues.
- Analytics companies must develop excellent mobile credit scoring models that accurately predict loan payback.
- Customers apply for loans and authorize MNO’s to use their call data securely and privately for loan approval. Customers get quick decisions on loan approvals.
Cignifi, First Access, InVenture – Mobile Credit Scoring Firms
McKinsey and Company in 2013 issued a report identifying the need for alternative methodologies—including mobile—to assess credit risk among the unbanked. The following companies are actively engaged in finding better ways to offer credit in emerging markets.
Cignifi and First Access work with CDR and TDR data to develop credit scores for lenders. InVenture analyzes data and also funds the loans. Here’s a brief background on each company:
- Cignifi. Based in Cambridge, Massachusetts, the company’s management team has expertise in big data analytics, consumer scoring and mobile financial services. Cignifi uses mobile phone usage to assess not only a person’s credit risk but also the probability that a person will use a particular financial service or product. The company works with partners in Uganda and Ghana to expand the use of mobile financial products and services. Its main partners are mobile operators, banks, retailers and insurers throughout the world.
- First Access. Located in New York City and Tanzania, this company also consults with lenders providing mobile credit scoring of unbanked customers, who lack the collateral for loans. For a comprehensive view of the company, see the CGAP summary and download its PDF.
- InVenture. This very progressive analytics and financing company, located in Santa Monica, CA, uses SMS, Facebook, and What’sUp as part of its credit risk review. InVenture developed its own Android app and financial analysis software called Insight. The app makes it easy for customers to track their finances, apply and get a loan decision in one minute directly from InVenture.
Operating primarily in Sub-Saharan Africa, this firm is rapidly expanding into Kenya. CEO and Founder, Shivani Siroya, explains in the video below about the world of credit and developing markets.
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