In East Africa particularly, the digital financial services industry has grown exponentially and so has the volume of digital data collected by players. Digital financial services have also brought about greater financial inclusion. However, this has fueled concerns about the processing, storage and use of data collected. Concerns ranging from the relationship between the data and creditworthiness of borrowers, to the security of the data collected and the effectiveness of regulation in curbing over-indebtedness. This roundtable discussion sought to gain insights on how digital data is transforming financial services and inclusion across East Africa.
Daniel Mwesigwa, contextualized digital financial services in East Africa. He pointed out that according to GSMA, Sub-Saharan Africa leads in volume of Mobile Money transactions estimated at 23.6 Billion USD, which accounts for almost half of the volume transacted through Mobile Money and where, East Africa accounted for 25% of the total. Then he invited the panel to discuss the role of digital data towards extending financial services and inclusion.
Rose Muturi, Assistant Chairperson at Digital Lenders Association of Kenya, begun by discussing the relationship between digital data and financial services. Her assertion was that the relationship ideally is symbiotic as data allows for more tailored financial services, competitive pricing and scaling of services especially for new market entrants. She also pointed out that all data is valuable depending on how you use it, here she elucidated the nuance of data collection employed by some digital lending apps. Lastly, she explored how the Banks, Mobile Network Operators and digital lenders are both competitors and collaborators. Finally, she highlighted that they all offer similar products at competing prices, while establishing a symbiotic ecosystem where each can rely on each other.
Joel Muhumuza, Country Director for Jumo Uganda and Kenya gave us a brief overview of the development of Jumo and how it operates. He embarked on sharing lessons learnt from his experience at Jumo. He argued that the assertion that all data is valuable was not entirely correct as without the necessary tools, interpretation and use would be suboptimal. He gave the example of the data collected from MNOs that typically wasn’t meant to make up data for financial risk assessment. He further indicated that the tools in interpretation ought to improve in order to bring out the value. Similarly, he stated that obtaining informed consent posed a challenge as often the customer failed to full understand the terms of service due to their urgent need for the money, additionally citing, poor digital and financial literacy. Finally he asserted that the regulatory and policy framework posed a significant challenge on the operations of similar businesses, thus high failure rates, especially due to restrictions on processing of data.
Firas Ahmed, Founder of AzamPay, elaborated how AzamPay works and the challenges experienced as a result of limited data on customer behavior especially in regards to creditworthiness. He highlighted the need for data that was accurate, timely and constantly optimized to actual trends. He pointed out that in his course of business; the only way to mitigate risk would be persistently refining data on customer’s creditworthiness. He argued that there was need to make all transaction transparent for the purposes of fully collecting all necessary data and thus further avoiding risks attached. The essence of his discussion was that there lacked sufficient data to support SME and B2B lending. Mwesigwa in a rejoinder highlighted that despite there being limited data availed to lenders, Banks in Africa were performing well with far much less risk attached, attributable to the fact that they often held the escrow accounts for Mobile Money operates, thus weren’t really motivated to come up with or support new products for SMEs and B2B lending.
Ali Hussein from KICTAnet, begun by raising issues centered on the use of data held by financial institutions. He pointed out that, despite the volumes of data, nothing in the way of a scalable solution was available for the East African market especially for the SME and B2B lending segments. In a rejoinder Mwesigwa, sought to highlight the challenge in establishing alternative credit scoring that could potentially be a viable method of averting risk, for both business and personal credit extensions.
The panel discussion brought out the following resolutions,
- There needs to be use of alternative credit scoring mechanisms that would facilitate inclusion for SME or B2B Lending. Further there needs to be better parameters in place to facilitate fair credit score practices, such as increased transparency in business practices and collection of alternative non-traditional data.
- The data in use ought to be repeatedly refined in order to reduce risk. This would require the capture of relevant data, use adequate tools in analysis and expertise in processing the data.
- There exists a need to generate incentives that would convince businesses to transact on digital platforms that in turn would be vital for the collection of necessary data in the support of SME and B2B Lending.