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Digital Lending: A loan in less than 60 seconds shows how lending has evolved in Kenya


Eddie Ndichu

I vividly remember the first bank I joined to lead digitisation during the advent of mobile money, 11 years ago. I had to learn banking in general first, and its conventional lending business model and products.

They seemed too complex and there was absolutely no way to pack in the structure of those products into a USSD message, let alone the screening and scoring.

Until I found one simple one to start with, the conventional ‘loan top up’. No documentation or re-submissions required: only a request by the customer. It was brilliant. So we built the first ever mobile loan product and the customer would wait 24 hours before the money was in their bank account.

Mobile phone-based lending has greatly evolved. This would not have been possible without online data and mobile money. Whilst mobile money started off as a peer-to-peer cash transfer platform, the technology quickly evolved to include retail payments, diaspora remittances, betting, and mobile loans.

Mobile phone-based loans have been the biggest game-changer, especially with regard to financial inclusion and access to credit by small and micro entrepreneurs.

A loan in under 60 seconds. Applied and disbursed directly to your mobile phone. Mobile loans have also taken root because of the dignity they afford users.

An emergency can now be remedied and a livelihood can now be made. The instantaneous nature of these loans have led customers to overlook how much it really cost them to access it as well as set their expectations significantly high as they have never before had such an experience.

What started off as a product offered by telcos, then quickly taken up by banks, is now dominated by stand-alone mobile credit apps.

The ongoing success of Kenya’s mobile loans industry can be credited to use of technology to develop credit scores for borrowers, and using this information to rate their credit-worthiness.

At the heart of this lending is the customer data used. It acts as the security for these unsecured loans and a significant part of how risk is measured.

Without it, this model would never exist. Mobile phone-based credit-scoring algorithms offer the best solution to the biggest challenge in the lending industry: gauging if a borrower can repay or default.

Unlike social media platforms that do not have any capital or risk exposure, mobile lenders have to ensure there is integrity and protection of this information for the customers and business sustainability.

With only a third of the adult population in sub-Saharan Africa registered with any of the formal banking systems, a majority rely on mobile money to access financial services, World Bank data shows.

When we started doing research for the Opera run micro lending app OKash, we found most borrowings come in early morning and throughout the day, with subdued demand over the weekend. This implies that most borrowers are micro entrepreneurs seeking working capital for their businesses; or cash to attend to emergencies.

With every SIM card in Kenya linked to the national population registration bureau, mobile phones have now acquired unique personalities that can be used to drive financial inclusion through mobile loans.

This makes the 37.3 million mobile money subscribers in Kenya potential loan borrowers.

Eddie Ndichu is Managing Director for Opera in Africa.