How much you should know about a person before giving him a loan?
Normally we give credit to someone we know or trust. But mostly we won’t lend to a stranger unless we know something about him.
Banks, credit card companies and other financial institutions don’t know us on a personal level, but they have their own way of finding out our credibility – and that’s through our credit scores.
But there are 2.5 billion people (a third of the world’s population) around the world that don’t have a credit score. They don’t have a score because there are no formal public records on them – no bank accounts, no credit histories and no social security numbers. And so they are not trusted. As a result, they don’t have access to credit or financial products that can lift their lives.
However, there is no need to lose hope.
Shivani Siroya, founder of InVenture, has brought a revolution by finding a way to build financial identities for those who otherwise would have none. She has found a way to build trust and to open up financial access for these 2.5 billion. InVenture has created a mobile application that builds credit scores for them using mobile data.
At present, there are over one billion smartphones in emerging markets. And just like any normal privileged user, these people are also texting their friends, looking up directions, browsing the Internet and even making financial transactions. Over time, this data is getting captured on the phones, and it provides a really rich picture of a person’s life.
InVenture customers give the company access to this data and the company captures it through its mobile application. It helps the company to understand the creditworthiness of people and issue uncollateralised loans to those who pass the algorithm’s benchmark.
According to a report in the Financial Times, the data range from mobile money spending patterns and calling and travel routines, to the way contacts are organised: for instance repayment of a loan is more likely by someone whose contacts are listed with both first and second names.
These data won’t be found on a paper trail or in any formal financial record. But it proves trust.
InVenture’s credit scores have helped the company deliver over 200,000 loans in Kenya in just the past year. And the repayment rates are above 90%, which is in line with traditional bank repayment rates.
InVenture also forwards positive credit reports to Kenya’s Credit Reference Bureau to help people – many of whom have never been into a bank – secure longer-term loans.
InVenture is based in Santa Monica, California. It operates in Kenya.
Siroya decided to focus on Kenya, because of its relatively high smartphone penetration, world-leading M-pesa mobile money platform and the fact that it was English speaking. The FT report said the app was launched in early 2014, and now some 125,000 Kenyans previously considered uncreditworthy have Tala – the InVenture app’s new name – financial identities.
With more than 50 employees now, InVenture has issued over 10m pounds in loans to 100,000 people. The average loan size is about $100 with the median about half that.
Before InVenture happened, Siroya worked in equity research, and mergers and acquisitions, at UBS and Citigroup/Healthnet, and formerly worked for the United Nations Population Fund.
