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The ‘New Credit Score’: Key takeaways from the MEST Africa Summit 2019

Lundie Strom, MEST Africa Community Manager, Friday July 26th 2019

Last month, MEST Africa hosted its third annual MEST Africa Summit in Nairobi, Kenya. The conference gathered top entrepreneurs, investors, and executives from the African tech ecosystem to network, collaborate, and discuss some of today’s hot topics including the future of the Agritech industry and the investor’s perspective.

Between a keynote from top sponsor, Microsoft, and engaging partner-led workshops, BBC Journalist Charles Gitonga moderated the panel titled, “The ‘New Credit Score’: How creative use of data is enabling financial inclusion at a micro level.” The discussion brought together five key players from the African fintech ecosystem to share their thoughts on the future of credit scoring and financial inclusion across the continent.

In a large part of the world, having a credit score is vital to accessing loans and financial services. “Most of Africa is looking to borrow,” Charles began. “What are some new methods of gathering data and using it creatively to come up with a ‘new credit score,’ and how can we better work toward financial inclusion?”

“The reality of ‘new credit scoring’ these days is gathering data from multiple sources and gaining a more holistic understanding of individuals and their circumstances,” Chris Czerwonka (Co-Founder of Mosabi) told us. “There’s science in it - data science - but it’s also an art to dissect which data points can give us an understanding of an individual who has never had a bank account. We want to open up the same opportunities to the lower income segments who don’t have access to traditional educational pathways; we think education and understanding how to engage responsibly with financial services is one way of building credit-worthiness.”

The problem with the large number of un-banked people across the continent, however, is that there is no track record for lenders to lean on when evaluating a loan. Companies are beginning to think creatively.

“Most new lenders will lend with small money to build your profile on trust and willingness to repay,” Sandra Locoh (Head of Origination, Africa at Lendable) said. “A powerful credit score is one that not only looks at the ability to repay, but willingness to repay. It’s hard to track through data if someone really wants to repay you, even if they have the ability.”

“Willingness to pay can be dependent on context,” Ngozi Dozie (Co-Founder of Carbon), countered. “I can borrow $500 and plan to pay you back, but if my son gets ill, my willingness to pay is completely different... Loans are expensive, and circumstances change. Willingness to pay is fluid.” 

“The only way to gage willingness to pay is to lend to an individual and see if they pay it back,” he continued. “There’s no real way around it. The person’s behavior on subsequent loans is whether we can trust him or her to pay back future loans. We’re trying to get information where there is lack of data.”

Charles then asked the panelists to consider whether today's lending companies are gathering the same information that they did years ago, but letting technology do the work.

“I think that’s exactly it,” Chris responded. “Micro-finance institutions in Africa have been doing credit scoring for years but with paper-based, labor-intensive, boots-on-the-ground efforts that were perhaps effective in mitigating risk, but weren’t particularly inclusive. The barriers of understanding, or just the image of a banker in a tie coming into a rural shop to assess someone’s credit worthiness, is the opportunity with the new credit score. Digitizing those approaches transcends what was assessed in the past.”

There’s no shortage of methodologies to use, either.

“There’s a huge variety of approaches to data gathering,” Niraj Varia (Investment Director at Novastar Ventures) added. “One is of course to start small and build up a credit profile as you lend. We’ve also seen a number of companies collecting data on an individual or a company’s personality by assessing their willingness to learn and educate themselves, and then correlating that against the business performance. Others provide free software to micro-businesses and use that to understand the quality and performance of the business, and correlate that with the credit-worthiness of the individual. I could go on.”

Charles then shifted the focus toward financial inclusion. “Mobile technology has received a lot of attribution as one of the big drivers of financial inclusion on the continent,” he said. “Do you see more technology emerging that will provide more insights than just behavior monitoring?”

“It’s inevitable that we’ll continue to have new access to newer insights and more data points. The question is not will that future exist, it’s already coming very quickly. The next question is how do we embrace that future responsibly, and grow our business models and scoring in a way that is fair and transparent to our consumers,” Chris said.

With the amount of data and access to information growing rapidly, transparency and data protection is a highly contested topic. “Less than half of African countries have a solid law on data protection. Does this concern you?” Charles asked.

“Governments, service providers, and tech hubs need to work collaboratively to provide consumers with a more explicit way to approve the use of their data. There has to be a global standard to create a balance between service providers having access to data, and users being able to control their data privacy. ” Tosin Eniolorunda (CEO & Founder of TeamApt) said.

Ngozi agreed. “One thing we don’t have enough of is collaborations amongst startups or people with customer distributions,” he said in his closing remarks. 

“If we have enough trust to work with each other, the barriers come down. It’s easier for me to lend to customers of another business that has built that trusting relationship. We need that collaboration in the ecosystem for credit scoring to become cheaper and more pervasive across the continent.”

Collaboration is key! Thank you to our panelists for contributing to such an engaging conversation. We look forward to more discussions like this one at next year’s MEST Africa Summit.

For more, read the full MEST Africa Summit 2019 recap here.