Digital Credit Scoring Give Birth to more Affordable Microloans in East Africa

Fintech, East Africa, Tala, Oradian

Fintech companies make use of digital technology score to determine the creditworthiness in the upcoming markets.  The system allows millions of individuals in East Africa to obtain affordable financial services and credit facilities. According to the report by United Nations and the ID2020 project, about 2.5billion individuals globally lack access to financial services. Majority of this population come from Africa where government and financial services are difficult to access.  Additionally, less than 10% people in the developing countries have their files in the public credit registries.

Given market opportunities in East Africa, Microfinance institutions (MFIs) charge 30% annual interest to their borrowers. This is as a result of high risks of loan defaults associated with limited borrower data to back up lending decisions. Traditionally, financial institutions have made lending decisions without access to customer data.

The initiative launched by financial inclusion companies, Fintech, and digital finance applications provide various solutions in East Africa. The partnership assists by providing alternative credit data. For instance, Tala in East Africa (Credit scoring applications) collects large data information concerning phone holder. The initiative uses these masses of data to generate accurate and genuine credit scores in the region.  Microfinance banks (MFBs) alongside MFIs make accurate loan prediction and lending decisions simpler. The long-term effects constitute of affordability of credit facilities, loan collection rates, and profitability of financial institutions.

As the number of smartphones increases in the region, the cost of internet is expected to go down in years to come in. The partnership between fintech and Oradian will provide credit officers at the MFBs and MFIs with real-time credit scores.  The initiative will be made via API integration.

In addition, fintech can also assist in securing more affordable credit facilities in the low-income markets. API integration system is an effective way used by MFIs and MFBs for services, products, and scoring app improvement. This will help the financial institutions to achieve product and business differentiation, particularly in the competitive markets.


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Written by Denis Opudo

Am an engineer who's a tech blogger, hit me up on [email protected] and we base our discussion on technology in Africa and the rest of the world.
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