LATEST Ericsson report has revealed how mobile data analytics could bring microfinance to hundreds of millions of individuals and businesses, particularly in Nigeria, that need short-term credit.
The provision of small, short-term loans, according to the report is a labor-intensive business that has traditionally been reliant on personal relationships between lenders and clients.
“As a result, it has tended to be a local, small-scale activity, with its growth hampered by a dearth of reliable credit information about applicants”, the Ericsson report added.
But the growing use of mobile phones, digital services and mobile money accounts, the report said, is beginning to fill that vacuum.
According to the report titled ‘disrupting the Microfinance market’’ , Mobile operators are teaming up with banks, financial tech companies, and data analytics specialists to use the data they have on customers to gauge their credit risk and offer microfinance products to some who would otherwise lack any proof of their ability to repay a loan.
The future of microfinance This latest mobile financial services insight brief explores how new digital technologies and services are enabling microfinance to scale in a way that wasn’t possible using the sector’s traditional distribution model.
It also discusses the steps a microfinance provider should take in order to gain a competitive edge and win market share while also enjoying economies of scale.
Based on the report, new digital technologies and services are enabling microfinance to scale in a way that wasn’t possible using the sector’s traditional distribution model.
This opportunity, the report said is attracting a host of new entrants, armed with innovative data analytics models designed to match lenders and borrowers as efficiently as possible.
The providers with the best risk management algorithms, the report indicated will be able to offer the most competitive rates, enabling them to win market share and gain economies of scale.
The players with the largest loan portfolios, Ericsson report said will accumulate data and experience, giving them the means to hone their algorithms, reduce their risks, lower their interest rates and win more business.
“In the year prior to March 31, 2015, M-Shwari reduced the ratio of non-performing loans from 2.7% to 2% , a significant improvement in a short period of time.
“If they work together, mobile operators and banks should have a competitive edge because mobile operators have access to a rich stream of behavioural data, underpinned by robust authentication mechanisms, while banks have the expertise and the trust required to win regulators’ confidence.
“But they need to move quickly: data analytics will soon change the microfinance industry beyond recognition”, the report further explained.
