Fintech in Africa
The finance sector in the African continent faces major challenges of providing financial services to people who are either undocumented or do not qualify for traditional banking services. It is estimated that 80% of the African demographic do not have access to financial banking. As an extension to I See Africa’s Fintech in Africa report, this article looks at how fintech in Africa is leveraging off the continuous mobile boom in the continent. Through the creation of digital technology that uses mobile data to provide funding opportunities to unbaked Africans.
Africa has one of the largest mobile markets, GSM Association Trade Organisation’s 2017 mobile economy report states that by 2020 the continent will have half a billion mobile subscribers. With this the fintech start-ups are using mobile data to provide an understanding to consumers credit worthiness while verifying their identification.
‘Banks that are looking to expand into the mass market need a different approach…they must open into Africa’s informal economy, which means that many potential consumers generate, regular cash flows rather than a fixed monthly income’
Musta Chironga- Partner Mckingsey
Traditional banks looking to branch into the African market will need to find alternative methods to tapping into the low-income sector. The rise of branchless banking in the continent has provided a window in catering to the unbanked sector. The common lengthy process of information verification for loans is not efficient with regards to micro loans services that is mainly targeted to the unbanked or low-income demographic. Banks such as Barclays African and Old Mutual are using mobile data to assist in providing services that reduce the traditional process of identification verification and creditability. Both banks have taken on the service of Jumo to provide tracking and digital verification of potential consumers. Jumo uses consumers social media behavior to assist in testing if the consumer is credit worthy. The company based in Cape Town, South Africa partnered with mobile operators in Kenya, Tanzania and Zambia to gain access to data on how consumers use their phones. The manner in which consumers use their airtime, use of mobile money wallet etc is used as a tool to determine the user’s creditworthiness.
My Bucks digital banking provides loans in 15 minutes through Whatsapp and Facebook messenger. Known as the Haraka app in countries such as Zimbabwe, Uganda, Swaziland and Kenya where the application is currently available. Consumers simply download the app and grant the platform permission to scan the phone for information such as call patterns, text messages and geolocation information. The scanned data provides My Bucks with insight on consumers income and expenses.
Digital loan start-ups
Fintech innovators are bridging the gap of micro lenders lack of access to potential consumers. Digital rating start-ups have capitalized on the process of loan verification within the traditional banking sector, as the current system has lots of red tape and is exclusive to low income earners and refugees. In this aspect digital rating start-ups play a key role as the middle man within the fintech mobile lending sector. Lenddo distributes loans and educational finance to consumers based on their creditworthiness through analysis of consumers social media and data scores. South African Commuscore captures payment and lending behaviour of consumers and micro lenders in the informal sector. The company achieves this by creating an informal saving scheme administration and management tool that builds a profile on the user’s data points. One of the popular digital lending platforms is Tala. The platform collects consumer mobile data and uses the information to produce their credit score.
Big organisations are using digital rating platforms to assist in catering to SME’s in the continent. The Mastercard foundation fund for rural prosperity is supporting a partnership between the finance asset company Juhudi Kilimo and the Entrepreneurial finance lab. The partnership resulted in the creation of a digital credit scoring tool for small holder farmers who have little to no verification information. Another agricultural partnership saw fintech company First Access and agricultural information communication Esoko develop an agricultural focused credit scoring platform for rural farmers.
In 2016 the Centrum also known as Sidian bank in Kenya in partnership with Zohair issued asset financing for Uber vehicles. The platform uses drivers rating on the ride sharing app as credit verification. Eligible drivers need to have completed at least 500 trips with Uber and have an average passenger rate score of 4.6 and above.