This blog was co-written by Hege Aschim and Jennifer Frydrych.
In this blog post we will take a look at InVenture’s unique approach to credit scoring unbanked communities in the hope of extending access to loan products to those people outside of formal financial systems.
Recently, we have seen a number of mobile money providers launch innovative mobile credit products. Currently, according to the State of the Industry Report 2013, there are 17 live mobile money loan products. Whilst a big opportunity undoubtedly exists for mobile money operators to increase customer loyalty and drive mobile money product usage by offering loan products, there are two big barriers to capitalising on this opportunity:
- Lack of credit information of un- and under- banked communities
- High customer acquisition fees
In a series of blog posts by Yasmina McCarty and Simone di Castri, as well as Experian MicroAnalytics and Cignifi, MMU looked at how 3rd party commercial organisations such as Experian and Cignifi are credit scoring customers to help MNOs and MFIs address the demand for micro loan products by determining the credit worthiness of customers based on their airtime purchase patterns, emergency airtime advances, and so on.
mShwari, a micro credit product disbursed via Safaricom’s M-Pesa platform, uses customer’s existing M-Pesa transaction history to create an initial credit score. This method of credit scoring the underbanked is arguably the most reliable and realistic, though it does rely on the mobile money market being advanced, which it is in Kenya.
Despite initiatives like Experian or mShwari, the barrier to extending the reach of credit remains largely stalled due to a lack of access to financial history and credit information. InVenture, a new commercially-driven player, is trying to create credit scores for the 4.5 billion people globally who do not have formal financial identities. InVenture’s mobile application ‘InSight’, used primarily by micro entrepreneurs, relies on customers inputting their own transactional data, whilst also pulling minimal data from MNO records and mobile money transaction data. This data is used in two ways, (1) transformed into a daily P&L statement for the customer to better understand his or her financial status, and (2) to credit score the customer. The app was launched in India in 2011, and has since been launched in Kenya and South Africa.
InVenture’s vision of opening up creditworthiness to the unbanked is dependent on their ability to demonstrate that self-reported data produces robust, reliable credit scores. Whether or not customer’s self-reported data is sufficient to create robust credit score requires further evidence, but if it works, this could provide a new approach to building data. InVenture believes the InSight app could help MFIs differentiate customers based on their real risk profile by providing a better understanding of the diverse behaviours and patterns of heterogeneous potential customers in the unbanked segment. Inventure has a number of high-profile investors that have shown their support for its new credit scoring tool, including Google Ventures, Mumbai Angels, Mesa+ and Jasmine Social Investments.
We will have to wait and see whether InVenture’s self-reporting credit scoring model will be robust enough to be adopted by financial institutions and mobile money operators. The team behind InVenture reports to be constantly reviewing their model to improve both the quality of the data and their credit scoring model. InVenture’s long-term vision is to extend its position in the value chain by partnering with MNOs, and potentially to provide loans itself in the future.
The MMU team will be watching to see how new players and strategies in the mobile credit space evolve. Please comment below or email us at mmu@gsma.com.