Credit scoring: How the splinter is hurting Africa's financial system

With numerous mobile lenders flooding the market, lack of information sharing such as user credit score hurts more than helps the industry.

The mobile money revolution has opened up great financial inclusion channels especially in Kenya, the mobile money headquarters. The proliferation of mobile lending applications has given rise to popular brands such as OKash, mKey and others from the mainstream banking entities.

Statistics from these products show that there is a market fit for short term mobile loans and credit. Safaricom's Fuliza product that extends credit payment and airtime for users who run out of cash, has already lent out Kshs 140 billion (US$ 1.4 billion) since its inception in February 2019.

Banks such as Equity Bank of Kenya have recorded that 97 percent of their loans are processed through their mobile banking solutions. However, the standard bank loans still command a huge sum.

Even independent players are scoring big in the industry. Branch has raised US$ 367 million, while Tala totaled its funding to over US$ 219.4 million with the latest trench of US$ 110 million.

So good are these products that no one would intimate that there could be a downside to it. How do these companies know who is credit worthy? The traditional banks in Kenya have already established a data sharing framework. But with the high competition in digital loans, every player is collecting its own credit score metrics and this could pose a danger.  

The fly in the soup

Mobile money lenders initially did not have a base where they could assess their potential borrowers. Safaricom, which has the largest data bank of mobile phone users in Kenya (28 million), has no mechanism or plan to liberalise this data and uses it for its own lending product.

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