Millions lack credit histories. African banks are changing how they lend
African banks are using mobile money, telecom and POS data to lend to borrowers without formal salaries or credit histories.
Africa's banking system has long been built on the assumption that the best borrowers earn regular salaries. However, this overlooks millions of creditworthy consumers who rely on the informal economy. In response, banks are expanding their credit assessment methods by incorporating new data sources such as mobile money transactions, telecom activity, and point-of-sale (POS) payments.
These alternative data points provide a more comprehensive view of a customer's financial behavior, helping lenders evaluate the creditworthiness of individuals who have been traditionally excluded from formal credit. Companies like Notto, an African licensed and regulated alternative credit bureau, have analyzed over one billion transaction records and generated credit assessments for more than five million mobile money users in countries like South Africa, Zambia, and Zimbabwe.
This approach has successfully extended credit to over eight million consumers and small businesses, while maintaining low non-performing loan rates. Banks recognize that formal employment alone cannot accurately represent a person's financial behavior, and they are partnering with mobile network operators to gain insights into customers' financial activity that conventional banking records cannot capture.
By utilizing these new data sources, banks aim to serve the informal sector and reach underserved communities, ultimately expanding access to formal financial services for millions of Africans.
Written by urgent.news from TechCabal's reporting — not their text. Machine-written — it may contain errors, so check the original before relying on it.
