Fintech companies using digital technology to score the creditworthiness of people in emerging markets

Fintech companies are using digital technology to score the creditworthiness of people in emerging markets, potentially enabling millions of people in East Africa to get access to affordable credit and financial services for the first time.

With predictive data that enables lenders to make more informed decisions, fintech can help make credit more affordable for low-income borrowers in frontier markets. API integration is an efficient way for microfinance institutions (MFIs) and microfinance banks (MFBs) to improve their service, product offering and rates, enabling them to differentiate their business in markets with increasing competition.

According the United Nations and the ID2020, “more than 2.5 billion people around the world, many of them in Africa lack formal identification that enables them to access to financial and government services. What’s more, less than 10% of adults in low and middle-income countries are on file in public credit registries.”

The result is that millions of people in East Africa are paying punitive interest rates for credit or are frozen out of access to financial services. MFIs in the region charge their borrowers notoriously high interest rates, often up to 30% per year

MFIs in frontier markets have traditionally needed to make lending decisions without access to the sort of customer data and documentation commercial banks take for granted: credit scores, identification documents such as passports or government ID cards, bank statements, lending history and collateral.

Fintech providers, financial inclusion companies and digital finance applications are filling this information gap with alternative credit data. Credit scoring applications like Tala in East Africa, for example, collect masses of data about phone owners and use these data points to produce accurate credit scores.

With smartphone ownership in East Africa rising as the average selling price falls, an unprecedented amount of credit data is expected to become available in the years to come. Oradian,which currently serves a global community of over 50 financial institutions and one million end-clients, provides a cloud-based toolset designed for financial inclusion in hard-to-reach communities.

Third-party fintech software can plug into Oradian’s core banking platform via API integration so the two systems can ‘talk to’ each other. When credit officers log into their Oradian dashboard to see loan applications, loan performance and borrower information, they can also see the credit score provided by an alternative credit scoring app, similar to Cignifi and Equifax’s partnership in Latin America.

CIO East Africa officially announced the dates for its 2018 African summits.  We will be having a Fintech Summit in Kenya, 17th – 18th May with themed breakfasts in Uganda, 24th April 2018 and Tanzania – 26th April 2018 in preparation to the summit.