Kenyan lenders leverage on digital customer data to offer credit
Businessman Gilbert Wandera is currently building a house in his rural home in Busia, western Kenya.
Working in Nairobi, Kenya's capital, Wandera relies heavily on mobile money to pay his workers and buy construction materials, work that has been going on for the past four months.
Last week, the businessman was in a fix after running short of cash. After trying several commercial banks, the maximum loan they could offer him via their digital apps was 40,000 Kenyan shillings (400 U.S. dollars), but he needed more.
He turned to leading telecom Safaricom, which runs a digital credit platform, and was offered 750 dollars that he needed via his mobile phone.
Apparently, the telecom used his mobile money data to assess his credit worthiness and offered him the money.
"Being a businessman, I do most of my transactions via mobile money. Unlike the banks, the telecom has all the data on my transactions and I believe it is the reason why they gave me the money," he said on Wednesday.
In the past, Wandera would have had to walk into a bank and apply for the loan and surrender a title deed or car log book to get the money.
But all that is now in the past as banks and other lenders turn to digital customer data to extend credit to Kenyans. The data include bank account and mobile money transactions and airtime top-ups.
The new method is revolutionizing Kenya's credit sector, with millions of Kenyans who initially would never have borrowed money from banks accessing credit.
The money, which ranges from 5 dollars to 3,000 dollars, is mainly disbursed via the mobile phone.
The use of the data has now put Kenyan banks on the path to disbursing all their loans, big or small, via mobile phone.
With some 46 million Kenyans owning mobile phones and 30 million subscribed to mobile money, according to the latest data from the Communications Authority of Kenya, lenders are easily collecting customer data that inform decisions when offering loans.
The data has given Kenyan lenders confidence to offer businesses and individuals huge sums of money via the mobile phone.
On Monday, five Kenyan banks launched a digital credit facility that will see small-and-medium-sized businesses borrow up to 2,500 dollars via mobile phone, thanks to use of data.
It is a first in a country where over 90 percent of loans are currently being disbursed via the phone.
During the launch of the digital credit product by the banks, Central Bank of Kenya governor Patrick Njoroge termed the growing use of digital customer data to disburse loans in the east African nation as revolutionary.
"Lending has been constrained by the lack of reliable information to assess their creditworthiness. The innovation in this product is the use of all data on customers' transactions to fill this gap. In that sense it is revolutionary," he said.
Analysts noted that use of digital data will radically change the lending sector in Kenya, with banks being forced by the customers' needs to adopt this method.
"An increase in lending through digital platforms, especially by independent lenders, pointed to the direction the industry was headed, making banks which initially were rigid to conform," said Bernard Mwaso of Edell IT Solution in Nairobi.
Mwaso noted that globally, data is being used to drive business, therefore, the Kenyan banking industry is no different.
"Huge data is collected on mobile money platforms each minute which can be used to analyze peoples' income, remittances and even the state of the economy. This data has a big economic value, it is the reason banks and other lenders are leveraging on it," he said.