Big Data Over in Debt Final 1

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BIG Data Lending in Sub-Saharan Africa,

Responsibility is Key to avoid pain of the past.
The experience of the over-indebtedness crisis amongst the poorest in Kosovo and other
regions such Andhra Pradesh in India is still a clear memory to those who had to manage the
human and financial fallout from these situations. This type of crisis is caused by 2 factors;
excessive liquidity largely from donor funded institutions and secondly no credit bureau
infrastructure, or usage of it.
Are we about to witness the same cycle in sub-Saharan Africa with the highly funded race to
provide loans through the trend of alternative/big data, at the same time as MFIs are not
integrated into the credit bureau culture?
The approach to use telco data and social media data to access stable and trustworthy
individuals is a sound and positive approach to provide small loans to the poor. The concept
mirrors the successful use of voters roll data in the 1980s by the UK credit bureau to
deliver stability indicators prior to positive credit bureau.
This delivers an excellent approach to broaden financial inclusion as long as it is done
responsibly, with the use of credit bureaus to ensure multiple organisations are not serving
the same financially unaware customers, as was the cases illustrated by CGAP in their
excellent report Too Much Microcredit? A Survey of the Evidence on Over-Indebtedness By
Schicks & Rosenberg.
In a review of four countries, Chen, Rasmussen, and Reille (2010) reported that delinquent
loans, which averaged 2 percent of portfolio in 2004, skyrocketed to 2009 levels of 7 percent
in Bosnia-Herzogovina 10 percent in Morocco, 12 percent in Nicaragua, and 13 percent in
Pakistan. In some of these countries, subsequent levels have risen quite a bit higher. More
recently, collection has collapsed in the Indian state of Andhra Pradesh.
What are the key indicators that this situation may happen again? In the previous cases it
was high donor liquidity to traditional micro finance and non usage of credit bureau. In this
case the high liquidity is coming for support for alternative/big data lending and those MFIs
using these approaches not using credit bureaus.
There is a misconception that credit bureaus in developing countries will create a barrier to
new entrants to the formal financial system, as it is viewed only those with a credit record
will receive credit in the future. This is not true, credit bureaus create an environment that
supports unsecured or non-guarantor credit which does not exist in markets prior to credit
bureaus. This new form of credit then becomes the universal form for the masses that do
not have assets. The exclusion situation of those without credit records will only exist in
highly developed markets such as the US where lending is 100% bureau dependent. Having
said this, the process can be accelerated by alternative data in parallel with credit bureaus.
Creditinfo Group hf www.creditinfo.com info@creditinfo.com
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The focus in recent years has been largely on research and development of alternative data
lending. The international donor organizations like for example The Gates Foundation
invested heavily in projects in Sub-Saharan Africa focused on alternative data usage for
creation of greater financial inclusion. There are number of companies, which with such
support, developed various scoring models, majority being based on telcos data, which
enabled some of the credit providers to extend their loans to the unbanked populations. As
much as it is a positive trend one shall always remember that such data shall be shared with
private credit bureaus so not to create silos in the economy and allow for all lenders to have
access to it.
On the credit bureau side, significant steps forward have been made with the support of the
IFC and World Bank plus other donors such as KfW, SECO or DFID to mention just a few.
Over the last 10 years credit bureaus have been developed in 18 countries in Sub-Saharan
Africa. These initiatives are largely driven by central banks and governments licencing
private credit bureaus. The involvement of central banks ensures that regulated credit
providers (which are all banks, in certain cases some of the MFIs or even other financial
institutions), are usually enforced to submit data to credit bureaus as well as use credit
reports for their credit risk assessment.
However, this leaves a large tranche of the financial sector that frequently resists the usage
of credit reports whether down to reluctance to change, lack of knowledge or frequently fear.
This unregulated credit providers sector, whether it be Telcos, insurance companies,
retailers, donor funded MFIs or privately funded MFIs it is likely where a surge in liquidity will
lead to over-indebtedness and misery, for just the exact people donors are trying to help at
the bottom of the pyramid.
The obvious parties to drive change would seem to be Central Banks and private credit
bureaus. In reality Central Banks often have little real interest in an area that will not create
systematic risks for the financial sector. Credit bureaus will face a reaction of sales people.
This issue needs a concerted effort from all parties.
The stakeholders in this change process shall look at some key actions:
-
Independent education and capacity building programs amongst the management of

MFIs about the benefits of credit bureaus.
Central Banks and Government to take measures to ensure credit bureaus receive
data from all financial services providers.
Alternative/Big data credit providers integrating credit bureau data into their
decision process.
Donors and investors working with MFIs or alternative/Big data lenders insisting on
responsible lending practices being followed.
Credit bureaus to facilitate the addition of MFIs by minimizing IT and development

costs.
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With this approach we can avoid the errors of the past and achieve the goals of financial
inclusion with responsibility.
For more information about this article, please contact:
Agata Szydlowska
Head of Financial Inclusion & CRB Awareness Africa, Creditinfo Group hf
Email: agatas@creditinfo.com Skype: agatacreditinfo Mobile: +254 72299758

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Page 1 of 2

BIG Data Lending in Sub-Saharan Africa,

Independent education and capacity building programs amongst the management of

Credit bureaus to facilitate the addition of MFIs by minimizing IT and development

Creditinfo Group hf www.creditinfo.com info@creditinfo.com

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