The economic times are tough in the country and many Kenyans have resulted to borrowing money from digital lenders.
But what many borrowers may not be aware of is how mobile money lenders determine who qualifies for loans and how the loan limit is determined.
Already, the Kenyan market is awash with mobile money lenders who include: Tala, Okash, Branch, Mshwari, KCB M-Pesa, Zenka, Timiza, Omba, IPesa, Utunzi, Shika and Zidisha among many others.
Tala mobile lending app, which recently celebrated five years since they ventured into the business, considers the following things when deciding who to lend to and how much to give them. Their loan limit is up to Sh30,000 with Sh1,000 being the lowest.
To provide quick solutions to borrowers, mobile apps don’t have the luxury of tracking their applicants’ credit history through the normal banking process.
Rather, these apps, including Tala, request permission during installation and the loan applications process to access smartphone data of borrowers.
By reading through borrowers’ contacts and messages, mobile money apps are able to somehow create a profile of their would-be consumers and determine creditworthiness. It is not clear if the apps can glean the social-economic status of a borrower’s contacts or messages involving money transactions such as loan default messages.
But to make their screening process a bit better, the mobile loan apps also the information borrowers fill in their application process to determine creditworthiness. Valuable information could include information about their profession, working experience and monthly income.
Given that borrowers could give false information about themselves, the lenders minimize their risks by ensuring the loans disbursed to new borrowers are small amounts such as Sh1,000 to Sh3,000 on the lower end of the scale.
Hence new borrowers can build their credit rating scores with the mobile money lenders by repaying loans promptly, and in the process qualifying for bigger loans.
But many borrowers don’t feel safe with mobile money apps accessing their data for fear it may be shared with other entities.