Financier relies on use of mobile phones to check your creditworthiness
BY Tullah Stephen
Lenders have long relied on borrowers’ payment history to underwrite and make micro-loans. Often, this process relies on physical banking locations or branches and lending and collections officers filling application forms.
These traditional ways of lending, according to users, is far more expensive with high interest rates as well as lenders having to visit borrowers at their work premises to assess their ability to repay. A rigorous background check and lots of paper work then follow, a tedious and time consuming process.
However, financiers are now looking at innovative ways to bring loan facilities closer to the people and what better way than through their mobile phones.
In August 2015, Matt Flannery, former CEO and founder of Kiva.org, a non-profit lending platform leveraging on the internet and a worldwide network of microfinance institutions to lend to people, launched Branch International Inc, a mobile-based micro-finance institution.
Flannery, a Skoll Awardee and Ashoka Fellow, developed Kiva in 2004 as a side-project while working as a computer programmer. In December 2005, he quit his job to devote all his time to Kiva.org. And for 10 years as CEO, Flannery led Kiva’s growth to an established online service with partnerships in 80 countries. It was also during this period that Kiva lent out over $700 million to entrepreneurs.
Flannery left Kiva to venture into the start-up world by creating Branch International which, according to Flannery, is more of a branchless bank. “The Branch app is like a virtual bank and cannot be accessed at physical premises but through the user’s smartphone.”
For one to access the service, they are required to download the Branch app and fill out a short application form. This ensures that the users give consent for the app to scan through their handsets. “By installing the app, users themselves give branch access to any information that may help assess their creditworthiness. These include things like texts and email, to the duration of their calls.”
After scanning through the machine learning systems then processing data points obtained from the handsets, contact lists, social network data, GPS data and SMS logs to evaluate the user’s credit profile, the loan is then disbursed to the user’s mobile money account.
Flannery says once the loan is repaid on time, users then build on their credit history which in turn unlocks larger loans and better rates.
“Initially Branch offers interest rates of between 16 to 18 per cent. But as one borrows more, the rate depreciates to as low as six per cent.” The loans, he adds, can be repaid in a period of between two weeks to six months.”
In the six months Branch has been in operation, the app’s growth has been exponential. “Anyone who starts such a company is likely to be popular quickly because demand for the service is huge. We started it as an experiment but now managing the growth has been our biggest challenge.”
Currently, the app has over 100,000 downloads with over 40,000 people requesting for loans. Loans range from between Ksh5,000 (US$50) to a maximum of KSh50,000 (US$500). So far, branch has disbursed close to US$1 million. Unlike its competitors, Branch focuses on long-term lending and does not require collateral.
Flannery, a BSc in Symbiotic Science graduate, says that as a start-up, the artificial intelligence has been helpful. Such insights have helped the company reduced its default rate from 25 to five per cent.
Though Africa has witnessed a mobile revolution, Flannery believes that financial institutions are yet to fully take up opportunities available in mobile banking networks, especially on financial lending.
“Kenya has a growing tech savvy middle-class population, a majority of who are between 18 and 35. This group is predisposed to hate banks but would like financing and are willing to pay a fee upfront to split a payment over several months.”
However, he acknowledges a wave of start-ups using unconventional information to decide customer creditworthiness, saying this is the next frontier. Underwriting algorithms have begun to recognise that infrequent travel, fast-draining batteries and sending more texts than one receives, evening phone calls, as well as gambling are important in determining creditworthiness.
Straight from raising US$9.6 million equity funding from venture capital firms Andreessen Horowitz, Khosla Impact, and Formation 8, Flannery says Branch plans to expand into new markets and its first stop will be Tanzania. Apart from expansion plans, the company is also looking at further developing the product
While there has been concern about the nature of data the app collects in regards to privacy, Flannery assures users that the company will not sell information to third parties or use it for unauthorised procedures. Moving forward, he says the company is now focusing on how to integrate the app to enable users access loans across the borders.