• Appetite to move away from the use of traditional collateral is increasing.
• Big Data Scoring says some of the factors to be checked before lending to a borrower include location, web search results, behavioural tracking, device technical details, and mobile app data.
E-commerce platforms are considering ways merchants selling on their space can be allowed to use their transaction data as security to access loans in financial Institution.
This comes at a time when access to capital for small businesses remain scarce on the backdrop of interest rate caps as banks invest more in government securities.
“Borrowing money from formal financial institutions has become very difficult, most merchants are individuals running small businesses and have no title deeds, or vehicles to use as security for loans,” Jumia Chief executive officer Sam Chappatte said.
Speaking to the Star, Boston Consulting Group principal Amane Dannouni said progress is needed in making formal financial markets accessible to local SMEs and to attract Foreign Direct Investments.
According to a recent report by the firm, atleast 40 per cent of African countries have no FDIs agencies which would be helpful to local merchants.
Dannouni said that the local diverse legal frameworks and market make it difficult for online market places to build scale.
If successful, lenders will be able to use the data accurately to predict when a borrower will repay a loan or when its likely to be sent to a collector.
In the practice, the lenders will use business algorithms ( sales data ) and scoring methods which go beyond past credit scores to acknowledge a borrowers true risks and opportunities.
According to Big Data Scoring, a cloud-based credit decision engine, some of the factors to be checked before lending to a borrower include location, web search results, behavioural tracking, device technical details, and mobile app data.
This even as appetite to move away from the use of traditional collateral increases. Last week, artist called on financial institutions to consider the use of art, music, Intellectual property as collateral for loans.
Last month, investment firm Sterling Capital proposed that banks should use data analytics to group borrowers by risk level in order to determine credit pricing.
While private sector credit grew by 3.4 per cent in the last 12 months to February 2019, ratio of non-performing loans to gross loans stood t 12.8 per cent compared to 12 per cent in December 2018 according to latest Central Bank data.
According to Sterling Capital, use data analytics for risk-based pricing will help push up private sector lending and further reduce the rate of NPLs.
The firm, however, called on regulators to implement policies that will ensure SMEs and retail customers share correct information on a shared platform before they can apply for any loans.