Credit scoring and Mobile digital micro-credit in Africa

October 2018
Deep Dive
CREDIT SCORING & MOBILE
DIGITAL MICROCREDIT IN
AFRICA
@Orange_DV ; @MuxMi

22018 Orange Digital Ventures Africa
0 | Executive Summary
 In many countries, including those considered as
emerging or developing, the lack of access to credit for
a large segment of the population has led to the
creation of many informal lending systems for
individuals and professionals. Although their cost can
sometimes be exorbitant, the inaccessibility for many to
the classic bank credit has fostered the emergence of
parallel networks.
 In recent decades, many things have evolved in the field of
credit. The explosive growth of mobile phones and e-
money services are not unrelated. Indeed, with a mobile
penetration rate that is sometimes higher than 100% in
some countries in sub-Saharan Africa, coupled with the
growing financial inclusion, the result of a continental
movement initiated by mobile telecommunication
operators, the population that in the past had access to no
other form of payment other than cash, are slowly
starting to digitize.
 Thanks to M Shwari - an agreement signed in 2012
between the Commercial Bank of Africa and Safaricom -
the credit operations necessarily pass through a mobile
money wallet, meaning that the customer does not need
to travel to an agency to open an account or even to
collect the requested loan.
 If for a long time, this market remained stuck because of
the low rate of banking among the african population,
which prevented the banks from being able to collect
enough "traditional" data for purposes of scoring and
evaluation of the credit risk, now things have changed.
Indeed, the conventional information on credit were
replaced by data of a new kind.
 Different players (banks, telcos, microfinance, fintech ...)
share this new market for digital microcredit,
organized around different business models. Along
with telcos and banks, many startups have emerged in the
field of microcredit, which, often offer through a mobile
application, the possibility for their clients to be granted a
small amount of money. The decision to accept or refuse
the amount to be granted now takes only a few minutes.
 From the names of Tala, Branch or Paylater, these startups
analyze hundreds of different data in order to rate their
customers, an essential step in deciding whether or not to
grant the credit, as well as the associated amount.
 This hot market will soon see new players, such as
companies specialized in solar PayGo or payment
fintechs.
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CONTENTS
I – Fintech Value Chain in Africa
II – An enabling environment for micro-lending
III – Credit Scoring models
IV – Micro-lending models
V – Upcoming trends
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 Payment was the first segment of the FinTech value chain to be developed and the Payment
infrastructure is considered as the foundation of the other Fintech businesses.
 Lending is the second dominant segment. It used to be the exclusive purview of banks and credit
unions, and many Fintech companies are now getting into that space leveraging new Credit Scoring
models.
 Remittance is the last but not least core segment. Remittances in sub-Saharan Africa grew to $37.8
billion in 2017, and are predicted to hit around $39.6 billion in 2019(*).
FinTech Value Chain is very fragmented with 3 dominant segments
(*) Source: World Bank
1 | Fintech Value Chain in Africa
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PAYMENT LENDING REMITTANCE

5Orange Digital Ventures Africa
Payment Landscape (1)
(1) This list is not exhaustive.
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Lending, Blockchain and Remittance Landscape (1)
(1) This list is not exhaustive.
Blockchain Remittance
Lending
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CONTENTS
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2 |
An enabling environment for
micro-lending in Africa
• Borrowed amounts generally range from $1
to $500
AMOUNT
• The loan term is usually one monthDURATION
• The mobile phone is the preferred way to
request and receive money
MEANS
• The applicant receives after a few minutes the
desired loan
NATURE
• Credit scoring is a tool that will allow financial institutions (including
banks) to assess the risk represented by a loan applicant, ensuring the
solvency of the latter. In fact, credit scoring requires the use of
statistical models to turn relevant data into numerical measures
guiding credit decisions.
• In general, the scoring data comes from financial variables. In the few
cases, where they exist, the necessary information is provided by
credit bureaus, these organizations acquire and compile at the
national level the loan history of individuals.
• In the absence of a central database of customer credit information,
financial institutions use the historical records in their possession.
These includes, but not limited to transactions with and by the
customer and the financial behavior based on these transactions.
• As a true catalyst for financial transactions, savings and business
creation, financial inclusion is essential for economic growth and is a
decisive factor in improving living standards in developing countries.
• According to data collected in 2017 by the World Bank, 31% of adults
in the world are currently out of any formal financial system. A
significant amount of that population are mostly in sub-Saharan Africa
and Asia, where various reasons such as the lack of information or
resources explain this phenomenon.
• In terms of banking, the number of bank accounts throughout the
WAEMU (West African Economic and Monetary Union) Zone stood at
10.3 million at the end of December 2016 against 7.7 million in 2013.
(*) Number of accounts in a classic financial institution (**) Sub-Saharan Africa (Only developing
countries)
Source: World Bank
67% 67%
56%
42%
39%
36%
34% 33% 32%
29%
27%
23% 23%
21% 20%
18%
15% 15%
0%
10%
20%
30%
40%
50%
60%
70%
80%
Credit Scoring : What is all about ?
Banking Rates in sub-Saharan Africa in 2017*
Difficulties in collecting traditional information
Digital Microcredit main criteria analyzed in this study
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2 |
Faced with this unmet need for financial inclusion by banks and
other financial institutions, a new concept has emerged with
success;
Mobile money started in 2007 in Kenya by Safaricom, today,
similar services can be found all over the continent (and even all
around the world).
The objectives of e-money are:
1. Increase access to banking, by facilitating access to basic
financial services previously accessible to a small fraction of
the population.
2. Promote the use of non-cash means of payment for the
settlement of commercial and financial transactions.
3. Improving the reach of monetary policies through a deepening
of the banking and financial sector.
4. Develop the formal financial system and reduce the impact of
the informal economy, so as to directly contribute to the
reduction of money laundering and terrorist financing risk.
5. Diversify financial services suitable for the un(der)banked
population.
As of December 2017, 135 mobile financial service
deployments were reported in Sub-Saharan Africa according
to the GSM Association (GSMA).
In the vast majority of cases, these electronic money services
have replaced traditional banks in the daily routine of Africans.
Often held by mobile telecom operators, mobile money has
redistributed the cards in mobile financial services in Africa and
offered an additional opportunity in the collection of data to
assess credit risk.
Source : GSMA
1 Source : « Les défis de la supervision de l’activité d’émission de monnaie électronique en Afrique Centrale »,
By ELOUNDOU NDEME
SSA : Sub-Saharan Africa
Mobile money: the key to financial inclusion in SSA*
Of which 49% are in
Sub-Saharan Africa
142millions
subscribers
690millions
subscribers
276 services
in 2017
Of which 135 in Sub-Saharan Africa, 49% of
the total number of services
MOBILE MONEY SERVICES
AVAILABILITY IN THE WORLD
USER BASE EVOLUTION
Dec
2011
Dec
2017
247million
90-day active
accounts
Of which 168 million are 30-day active users.
Sub- Saharan Africa has 122 million 90-day active
users.
Dec
2007
Dec
2017
TRANSACTION VOLUME EVOLUTION
10
millions de
transactions
1800
millions
Including 1200 million mobile moneytransactions
recorded in Sub-Saharan Africa
TRANSACTION VALUE EVOLUTION
US$ 190
million
US$ 31,5
billion
Dec
2017
DEC
2017
TOP 4 MOBILE MONEYUSAGE
(DEC. 2017)
1
With
mobile money
7services in 2007
2
30%
Transfers
30%
Cash-in
2
6%
Bulk Payment
4
24%
Cash-out
3
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2 |
• Two decades ago, data collection was a time-consuming and inefficient
process in developing countries. In rural areas, it was particularly
difficult or impossible to access consumer data.
• For people living in major cities in sub-Saharan, the situation was
better but not the best. While the data in terms of national censuses
and consumption of goods and services were better plotted globally,
no means had hitherto made it possible to draw precise population
profiles.
• In a world where financial institutions (Banks and MFIs) do not lend
money without a solvency guarantee, which can not be obtained
without a proper financial history, it was necessary to find adequate
alternatives.
• In contrast to the long and costly traditional processes used by banks
to create a digital footprint for the un(der)banked, the Big Data
inherent in the digitalization of the continent now provides an easy,
quick and inexpensive procedure for collecting a large amount of data
useful for credit scoring.
• The advantage of this is found both on the part of financial institutions
(which can best assess the risk of granting a loan to a customer), as on
the side of users who when they meet the conditions can now easily
access a credit.
Mobile Subscribers
in SSA
Unique Mobile
Subscribers in SSA
Total number
Subscribers in SSA
60% of mobile
connections will be in
high-speed in 2020
whereas it was only 33%
in 2016
2016 420
m535
m
2020
• 6,2% average annual
growth rate between
2012 et 2020
• Availability will rise
from 43% to 48%
2016 731
m942
m
2020
• 6,2% average annual
growth rate between
2012 et 2020
• Availability will rise
from 74% to 85%
• In recent years, a number of actors entered the customer risk
assessment space by providing services leveraging their in-house
scoring algorithms. These entities, taking advantage of the explosion
in the number of data produced, have developed relevant alternatives
to harvesting non-traditional information from customers who would
like to apply for credit.
• Although they take different forms and coverage spectra, these data
are mainly provided by mobile telecommunication operators,
specialized startups, large billers, etc. They thus complement the offer
available to banks, in the perspective of scoring and classification of
customers.
• THESE NEW AGGREGATED ADDITIONAL DATA INCLUDE:
1. Data from Mobile Money Services
• These are the most relevant sources for customer scoring, as
mobile money services on the continent have almost completely
replaced the very weakly adopted bank accounts. These data can
be used to estimate user's income and be a relevant financial
behavior appraiser
2. Mobile Network Data
• The rationale behind this set of data is as follows:
 if an individual buys airtime regularly, this indicates that
he could have a stable source of income.
 Calls to and from abroad also tend to indicate a relatively
high standard of living
3. The Location of an individual in a rural or an urban area
• This can be used to understand the customer's behavior. A
location in a dense area during the week may indicate that the
client has a recurring job or activity, whereas a position in the
same area in the evening may indicate his/her place of living
and thus determine, his/her social class
Mobile is the source of a new category of data for
scoring purposes
Non-Traditional Data collected via Big Data
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CONTENTS
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3 | Credit scoring models
In sub-Saharan Africa, the generation of relevant data for the purpose of granting (micro) credit to a client is
spread among different actors. They can be a classic financial institution (this is the case for banks and
microfinance institutions), indirect financial institution (electronic money issuers), technology providers (mobile
phone operators), large billers, and digital loan platforms that through registration forms and loan repayments
will collect valuable data for the scoring of customers.
BANKS & MFI TELCOS
LARGE
BILLERS
E-MONEY
ISSUERS
Traditional data Non-traditional data
+CREDIT BUREAUS
LENDING
PLATFORMS
TYPOLOGY OF DATA SCORING HOLDERS
Study Cases : Kenya & Wamu
Different players hold different data
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Industry players and the nature of the information collected
• Information
stored in
credit bureaus
• Airtime, Water,
Electricity, PayTV,
Tuition
• Mobile Money
account balance
history
• Value, Volume
and frequency
of P2P Mobile
Money
transactions
• Value of bill
payments made by
mobile money
• Activities recorded
on loans
platforms
• International
remittance via
Mobile MMoney
BIGDATAFROM
MOBILEMONEYBANKED
CUSTOMER'S
DATA
PERSONAL
INFORMATION
ONLIN
E
DATA
BILLS
PAYMEN
T
• Airtime purchase,
volume of calls,
duration of calls,
number of people
contacted ...
• Frequency and
duration of
international calls
• Internet bundles,
time spent on the
web, phone brand
• ...
• Geolocation of
customers during
the day, in the
evening, holiday
periods ...
MOBILE
NETWORK
DATA
}• Frequency of loan
repayment
• Bank and MFI
accounts
transaction
history : cash-in,
cash-out,
transfers,
payments, etc.
• Loans (and rates)
history
• Personal savings
amount
}
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The fundamental role of regulation in setting up models
• Noting the continued expansion of e-money services in a number
of countries, some central banks started establishing a specific
statute for e-money exploitation. This is particularly the case in the
WAMU zone, where the BCEAO (Central Bank of West African States)
published in 2015, an update of the regulatory framework relating
to these services. This trend, encourages telecommunications
operators to obtain an authorization to become Electronic Money
Establishments (EME) so as to operate their mobile money activities
in an extended liability framework.
• The EME :
1. Is responsible for issuing, managing and distributing
electronic money;
2. Implements the compliance policy in place of the partner
bank, which previously performed this activity;
3. Instructs the Central Bank, requests for launching new
features and monitoring the activity.
• Although this activity of issuing electronic money has enabled
mobile operators to obtain independence from the banks whose
regulatory entitlements they used until then, the fact remains that
certain essential activities are still prohibited to them till today. In
fact, in the vast majority of African states, the granting of credit is
an activity strictly reserved for banks and microfinance
institutions. Mobile operators can neither on their own nor
through their subsidiaries responsible for issuing and managing
the e-money business, loan cash to their customers.
Banks –
Payment
Financial
Institution
• Need for authorization from
the Central Bank prior to
starting activities
• Required to inform the
BCEAO, 2 months before
starting toissue e-money or
marketing the e-money
service}E-moneyissuers
Microfinance -
Electronic
money -
EME
}
Issuance
Distribution of
E-money+
Issuing institutions are not authorized to offer in any form :
Limits to electronic money
Loans Interest
on funds received in exchange for the electronic money units
issued.
+
Regulation bodies play a fundamental role Different typologies of EME roles
Several regulatory processes depending on the issuer

CONTENTS
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4 | Micro-lending models
4 main models of digital micro-lending with different players
roles in the value chain
BANK + TELCOS
• Consumer data used
for scoring
• The distribution
channel (electronic
wallet and agent
network)
NBFI1 + TELCOS
• Scoring, underwriting
and loans made by
the non-bank
institution
• Telcos providing data,
electronic wallets and
agent network
STARTUP + TELCOS
• Use of the electronic
wallets of Telcos. No
partnership signed,
the startup still needs
to push loans to
mobile money wallets
• Scoring, underwriting
and loans made by
the startup
• Analyze and score data
to decide on the
granting of credit
• Unlock the amount of
money to lend
BANQUE + TELCOS
+ NBFI
• Telcos providing data,
electronic wallets and
agent network
• Subscription and loans
made by the bank
• Startups provide credit
scoring services
The regulatory constraints inherent to the granting of credit (most of the time only allowed for banks and MFIs), combined with the
different holders of customer data, pushed the market to organize around different models in which each part hold complementary roles:
Source : CGAP, Innogence Consutling
1 NBFI : Non-Bank Financial Institution
Banks
Telcos provide
NBFIs
Telcos Telcos
NBFIs
Banks Startups
Telcos
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Digital micro-lending services with the highest potential
Company name
Head Office United States United States Nigeria South Africa
Model Startup Startup Startup NBFI + telcos
Revenu sharing with partners No No No Yes
Countries of presence
Kenya, Tanzania,
Philippines, Mexico
Kenya, Nigeria,
Tanzania, India Nigeria, Ghana
South Africa, Ghana, Kenya,
Pakistan, Rwanda,
Tanzania, Uganda, Zambia
Launch 2014 2015 2012 2014
Funds raised
$109.4M
(~94M equity)
$81.2M
(30M equity)
$20.8M
(10,8M equity)
$79.2M
(~55M equity)
Number of subscribers 770K 750K 286K 5M
Number of loans granted 1,3M 2M+ 1,1M+ 20M
Loans originated $500M+ $200M+ $30M+ $700M
Strengths
• In-house app
• Mobile network agnostic
• In-house app
• Mobile network
agnostic
• In-house app
• Mobile network
agnostic
• No limit as regards to
customer's bank
• Accessible to customers of
partnering telco
• Advanced scoring algorithm
• Do not bear the lending
risk because not the
lender
• Access to customer data of
all telco partners, thus higher
possibility of refining the
scoring process
M = millions
Sources http://team.finland.fi/en/article/-/asset_publisher/finnfund-invests-in-financial-services-technology-platform-jumo Leveraging digital to unlock the base of the pyramid market in Africa, Waves of digital innovation in
financial services - Deloitte Wapi Capital
Data from Innogence Consulting
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Model 1: Partnership between Banks & MNOs
• The partnership between a banking institution and a mobile operator
is the most popular and successful model in microcredit on the
African continent. It is the one on which is based the famous savings
product M- Shwari
• Following an agreement signed in 2012 between Commercial Bank of
Africa (CBA) and the telco Safaricom, M-Shwari, a savings and loans
product granted by the bank, is being launched for M-pesa customers,
mobile money service created in 2007 in Kenya. With M-Shwari,
savings and loans transactions pass through a mobile money wallet,
meaning that the client does not have to travel to an agency to open
an account with the bank that owns the service
• Safaricom, which has earned the lion's share of the mobile money
market due to its status of pioneer, also controls 79% of the volume of
voice telephony traffic and 96% of the volume of text message traffic
in Kenya. This extraordinarily rich database is provided to the CBA, for
know-your-customer (KYC) procedures as well as information on the
consumption of airtime and the transaction history of the M-PESA
account.
• This information is then used by the bank during the opening of
accounts, in particular to establish the credit limits granted to each
customer that will, once validated, directly receive his credit into his M-
Pesa account.
• Following Kenya, M-Pawa was launched in Tanzania, after a
partnership between Vodacom and CBA. Few months later, Safaricom
launched in Kenya the equivalent of M-Shwari called KCB M-Pesa in
partnership with Kenya Commercial Bank.
• Banks's core banking systems infrastructure are not always structured
to effectively integrate with mobile services.
• Another difficulty being that the service needs to perform real-time
KYC verification and use algorithms based on the customer's credit
history as well as the use of telco services, to determine the eligibility
of loans and the maximum amounts granted. In fact, each operation is
initiated by the operator's customers from their mobile, from which
they question the servers of the operator who then redirects the
request to the bank's servers.
• To successfully launch M-Shwari, CBA required a solution with the
ability to seamlessly integrate with its partner Safaricom's mobile
money platform, scaling to large number of users. Fiorano SOA
Platform (Service Oriented Architecture) was chosen as the platform,
allowing CBA to expose its Core Banking transactions as web service
flows besides ensuring guaranteed message delivery and scalability.
A model that meets local needs in Kenya… .. but with some Architectural Problems
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Model 1: M-Shwari’s example – A paperless mobile banking
service offered through M-PESA
• The opening of an M-Shwari account with the CBA entitles its owner
to an "almost classic" bank account, even if the agreement with
Safaricom involves some restrictions
• The M-Shwari Savings Account is a micro-savings product that
securely stores money for specific purposes or for an unexpected
event. This account offers the following possibilities:
1. No minimum balance;
2. No charges levied on the account;
3. No fee to transfer money from M-PESA to M-Shwari account
and vice versa;
4. In accordance with the Banking (Amendment) Act 2016, all
deposits on M-Shwari will earn interest of 7.35% per annum.
• The CBA has also launched an M-Shwari Blocked Savings Account, to
allow customers who wish, to obtain higher interest rates under the
counterpart of keeping their money between one to six months
• The M-Shwari Loan Account is a microcredit product that allows you
to borrow money when needed. A one-time fee of 7.5% is charged
for each loan. To qualify for a credit, any customer must first be an
M-PESA subscriber for at least 6 months, have saved on M-Shwari
and actively use other Safaricom services, like voice services,
mobile Internet, etc
• By subscribing to an M-Shwari account, customers give the
partnering bank the right to retrieve KYC identity verification
information digitally. This personal information is a first level of
data that will validate both the registration and will be essential in
the establishment of the customer scoring system.
• Validation of the legal notice by the client also gives the bank
the possibility to confirm the details of his personal information
with the State and its Integrated Population Registration System
(IPRS)
• Created in March 2015 to serve as a one-stop shop for personal
and biometric information for locals and foreigners, the IPRS
fulfills the primary goal of providing a comprehensive database
for all citizens of the country
• Since its launch, the Kenyan government has asked banks and
telecommunication companies to pre-confirm their customers ID
numbers in the system before registering them. IPRS now offers
a 360-degree view, allowing these institutions to authenticate
citizens‘ documents or identify Kenyans by matching their
biometric and photographic details with documents in their
possession
• In February 2016, the government announced having
onboarded more than 20 million Kenyans on its database. To
date, almost all of the M-Shwari accounts are identified by this
means and thus the maximum authorized limit for holding
money in the account is increased to KSh250,000. In this case,
the customer is then also eligible for loans from the parent
bank (CBA)
• As all banks are subject to "standard credit" issuance,
information on the use of the M-Shwari credit by each client
must be shared with the Credit Bureaus.
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Model 1: benchmark of active micro-credit services
Product Country
Launch
year
Provider Prerequisite Loan range Fee Maturité Number of users
M-Shwari
Kenya 2012 Safaricom &
Commercial Bank of
Africa
M-SHWARI Savings
accounts and other
Safaricom product active
users
From KSh100 to
KSh100,000
8 % 1 month 3.9m 30-days active
users (March 2016)
KCB
M-Pesa
Kenya 2015 Safaricom & Kenya
Commerical Bank
M-Pesa active accounts
From KSh50 KES
to KSh1 million
2.5% +
16% monthly
interest rate
1 month 0.73m 30-days active users
(March 2016)
Equitel
Eazzy Loan
Kenya 2015
Equity Bank Group Equitel users, Equity
Bank active accounts
Up to KSh3 million 14 % 1 month Sh30Bn worth of loans
issued in the year
(09/2016)
M-Pawa
Tanzania 2014
Vodacom &
Commercial Bank of
Africa
M-Pesa active users Up to KSh500,000 9 % 1 month
4.9 millions users during
the first two years
MoKash
Uganda 2016 MTN Uganda &
Commercial Bank of
Africa
Abonnés MTN Mobile
Money, Utilisateurs actifs
des services MTN,
épargnants MoKash
Between UGX3000 and
UGX1,000,000
9 % 1 month 1 million users 3
months after
deployment
Airtel
Money
Kutchova
Malawi 2016
Airtel, FDH Bank Airtel Money users
From TSh1000 to
TSh500,000
10 % 7 days -
EcoCash
Loan
Zimbabwe 2012 Econet, Steward
Bank Ecocash users From $15 to $500
5% (+8% if
delay in refund)
1 month -
Airtel
Money
Bosea
Ghana 2016
Airtel Ghana
(Tiaxa*), Fidelity
Bank Ghana,
Airtel active users Up to Ghc200 10-20% 1 month
3.9m 30-days active
users (March 2016)
MoKash
Rwanda 2017 MTN & Commercial
Bank of Africa MTN Mobile Money users
From RWF1000 to
RWF300,000
9 % 1 month 500,000 active users**
Momo Kash Cote d’Ivoire 2017/2018
MTN CI, Bridge Bank
Group CI
MTN Mobile Money users
(+6 months)
From FCAF100 to
FCFA500,000
1,25% +
Issuance fee
between 250
and FCFA3000
1 month
-
Source : CGAP & telcos websites
(**) https://www.cnbcafrica.com/videos/2017/07/12/mtns-mokash-mobile-loans-hit-310-000-in-first-half-of-2017/
(*) Tiaxa : company running airtime loan for Airtel Ghana
@Orange_DV ; @MuxMi

Model 2: White label solution (JUMO)
• In this model, which is close to the first described (partnership
between banks and mobile operators), banks are replaced by non-
bank financial institutions.
• JUMO is the spearhead of this second model spotted in the digital
microcredit market. Starting from the observation that more than a
third of adults in the world have limited or no access to formal
financial services, Jumo leveraged the explosive growth of mobile
money and the growing availability of mobile phones across the
African continent, offering its credit granting service in several
countries since 2014. To date, more than 20 million loans have
already been granted by the startup .
The customer
dials a USSD
code
(ex: *303#)
1
Money issued by
the partnering
financial institution
4
The user can
either cash-out the
money or use it for
digital payments
5
5
Refund made at
the end of the term
defined in the
contract. If not,
penalty charges
are applied
6
The customer
gets to a USSD
menu with a "Get
a Loan" option
2
The telcos share
with JUMO the
customer's data
3
Jumo: A multi-sided platform (MSP) that uses behavioral data to create financial identities
A simple and fast process to optimize user’s experience
• JUMO started as a mobile financial service startup under the Ghana-
based AFB microfinance, a financial institution providing payday
loans to government and business employers as well as consumer
loans. After validating its business model and proving the potential
of providing mobile financial services (mainly via business phones),
Jumo has been transformed into a standalone business.
• In January 2017, Letshego Holdings Limited, a pan-African financial
institution listed on the Botswana Stock Exchange, acquired 100%
of Jumo World's shares in AFB Ghana, to allow the start-up to focus
on its core business of financial technology it will be able to
continue to provide to telcos.
@Orange_DV ; @MuxMi

Model 2: active micro-credit services
Product Country Launch year Providers Prerequisite Loan Amounts Fees Loan terms
Timiza Loans Tanzania 2014
Airtel
Tanzan
ia &
Jumo
Airtel clients
(More than
90 days)
From TSh2000 to
TSh400,000
Loan terms vary from
7, 14, 21 or 28 days
with a single
repayment required at
the end of the term
7-28 days
Timiza
Wakala loans
Tanzania 2015
Airtel
Tanzan
ia &
Jumo
Airtel Money Agents
From TSh50,000 to
TSh500,000
Fluctuations 7-28 days
Tigo Nuvushe Tanzania 2016 Tigo Pesa & Jumo Tigo active
customers
Depending on
the
duration
1-3weeks
Kongola Zambia 2015 MTN & Jumo MTN Money users 12,5% penalty fee
QwikLoan
Ghana 2017 MTN, AFB, Jumo
Ghana Limited
MTN clients (More
than 90 days)
From GH¢25 to
GH¢1000
6,9% (+12,5% penalty
if failure in refund)
1 month
Wewole Uganda 2017 Airtel & Jumo
Airtel Money
users and
agents (More
than 6
months)
From UGX8000 to
UGX500,000 shillings
for cutomers
From UGX100,000to
UGX1,000,000 for
agents
From 6,75% to 15%
3 repayment
periods of
7,14
or 21 days
(*) https://www.daily-mail.co.zm/mtn-disburses-loans-worth-k150-million/
@Orange_DV ; @MuxMi

Model 3: Banks and Telcos partnering with NBFIs
Product Country Year Provider Prerequisite Loan amount Fee Loan term Reach
Airtel
Money
Bosea
Ghana 2016
Airtel Ghana,
Fidelity Bank
Ghana, Tiaxa
Active users Airtel up to GH¢200 10-20% 1 month
3.9m 30-days
active users
(Mars 2016)
http://africa.airtel.com/wps/wcm/connect/africarevamp/ghana/airtel_money/home/business/terms-and-conditions# https://www.tiaxa.com/solutions-
for-financial-services/emergency-top-up/
https://www.opic.gov/opic-action/featured-projects/multiple-regions/tiaxa-using-leapfrog-technologies-provide-“nano-credits”-millions
• Based on the user's behavioral data Tiaxa uses patented scoring
methods and algorithms to analyze user behavior and perform
segmentation and scoring processes to determine the right amount to
advance to each user.
• Once activated, the user will benefit from advances on balance, so
that his calls or data will not be interrupted as long as he has access
to the additional balance made available by Tiaxa. Thus, during the
next recharge, the pending amounts will be automatically recovered.
• More recently, Tiaxa has developed an offer of nanocredits via mobile
money, which provides a range of micro loans, directly to the
customer's Airtel money wallet. The company, created more than 15
years ago, uses several algorithms that facilitate decision-making in
real time.
• Today, Tiaxa has more than 130 million users in 20 countries and
provides seven million nanocredits per day. The company charges a
small interest rate for each credit granted.
• The third model in digital microcredit is in fact a mix between model 1
(Bank and Telcos) and model 2 (non-bank financial institutions and
Telcos). Indeed, it sometimes happens that on the African continent
and more generally in emerging markets, financial institutions are not
always able to understand the shift in digital financial services without
the contribution of providers outside their entities.
• In Ghana, for example, this model has created an in delivering
microcredit products to needy partnership between a bank (Fidelity
Bank), a mobile operator (Airtel Ghana) and a third-party entity (Tiaxa),
to set up the Airtel lending service: Bosea.
• Thanks to its proprietary "Tiaxa Online Balance Advance" technology,
the company already supports telecom operators, including Airtel, in a
service focused on providing advance on balance to prepaid users
when their available airtime is insufficient.
@Orange_DV ; @MuxMi

Model 4: Startups disbursing loans via mobile phones
1 Source : https://www.privacyinternational.org/sites/default/files/2017-
12/Fintech%20report.pdf
 Unlike M-Shwari, KCB M-Pesa, or the various products resulting
from partnerships between Jumo and its mobile operator
partners, there is no partnership agreement between Branch
and Safaricom or any other Kenyan telco.
 One of the most valuable sources of analysis is in SMS content,
including the M-Pesa payment record data sent by the telco
providing the mobile money service (Safaricom).
 Indeed, each transaction is tagged with a unique receipt
number that is included in a confirmation SMS sent to the
customer, with the updated balance of his account. This
receipt number is used to track and identify all transactions
made on the customer's account.
 By having access to SMS, Tala as well as Branch and other
similar applications are able to determine the solvency of
customers, as well as the value and volume of transactions.
 Tala's data can also be used to analyze people's use of their
loan, given that in the vast majority of cases, the money they
receive leaves their mobile money account immediately to
fulfill the need for which they have been issued: tuition fees,
health fees or reimbursing a person.
 The tight grip of telecom operators on mobile money services,
including USSD channel control, has for a long time been a
significant barrier to the entry in the electronic money industry and
its various segments.
 However, the increase in Internet penetration and the steady decline
in smartphone prices have had a positive impact on the advent of
fintechs, which have to compete with existing players on the market
for digital microcredit.
 This is notably the case in Kenya, where two of the main credit
solutions (Tala and Branch) have emerged, using the mobile
application channel to make themselves available to as many people
as possible.
 Branch International is part of the category of unregulated lenders,
also outside the regulatory and supervisory framework of CBK
(Central Bank of Kenya). Like Branch, Tala is also available
exclusively through an Android application. From the data provided
by the user through the application, a decision is made as to
whether or not to grant a loan, to grant the exact amount
requested (or a lower amount), as well as the interest rate applied
to the loan (according to the level of risk assessment calculated by
the startup's algorithms).
@Orange_DV ; @MuxMi

Model 4: Classic loan request
REGISTERING
PERSONAL
INFORMATION
REQUEST REJECTED
/ CANCELLATIONUSER NOTIFIED
DATA AND LOAN
ANALYSIS REPAYMENT TERMS
LOAN DISBURSEDTERM DATE
ON-TIME PAYMENT
REQUEST FOR TERM
EXTENSION
PAYMENT
DEFAULT
1 2 3
45
6
7
If payment on time:
improves credit score and
the lender's confidence
level, unlocks access to a
higher loan amount and a
lower interest rate
CREDIT BUREAU
NOTIFICATION
If default: degrades credit score
and the level of trust of the lender,
may lead to the filing and
therefore the non-granting of a
loan on any platform whatsoever
@Orange_DV ; @MuxMi

Model 4: App focus (1/3)
• Tala was the first instant mobile credit app launched in Kenya under
the name Mkopo Rahisi in 2014. To access Tala loans, customers
must possess an Android smartphone and an active Facebook
account.
• To obtain a microcredit, simply download the Tala app on the
Google PlayStore. By launching the app, the client will be able to
make a request for an amount of money to borrow after answering
a series of personal questions that will determine whether or not
the client is eligible for a loan. The Tala app, however, depends
primarily on reading the M-Pesa transaction history to determine
whether the user will be allowed to access loans.
• The minimum amount offered is KSh500, and the latter can
increase up to KSh50,000 after maintaining a good repayment
history. Reimbursement is normally made in three weekly
installments while the interest rate is fixed at 15%.
• When a loan application is approved, the client then receives a
notification on the maximum amount he can subscribe to, and can
choose to contract a lower amount. After choosing how much his
credit will be, the user has the option to choose his repayment
schedule.
• There are two possibilities, between a payment in one lump sum
after one month or 3 weekly payments (21 days).
Tala: A scoring based on transaction history User interface on Tala
@Orange_DV ; @MuxMi

GEOLOCATION
INFORMATION
Location data through GPS
TECHNICAL INFORMATION
Type of mobile device used, IMEI IDs or device's serial number, SIM card
information, Mobile network, Browser type, Device location and time zone setting,
Contact lists…
INFORMATION RECEIVED FROM
OTHER SOURCES
Credit bureaus (for credit history),
mobile operators
USER PROVIDED INFORMATION
By filling out the forms in the app
Branch: A loan provider using various data from mobile for scoring purposes
@Orange_DV ; @MuxMi

LOAN REQUEST
ON PAYLATER
BANK
ACCOUNT
INTERNET
CONNECTION
IDENTITY
BVN
VERIFICATION
REQUEST
APPROVED WIRE
DEBIT
CARD
WIRE OR
CASH-IN
QUICKTELLER
PAYMENT
REPAYMENT
• Either for contextual reasons (a banking rate much higher than
average in South Africa) or by regulatory constrains (in Nigeria,
telecom operators are not allowed to offer electronic money
services), the two leading economic powerhouses in Africa have
followed other paths to address issues of financial inclusion.
• If in Kenya, Tala or Branch have the advantage through Safaricom
to be able to disburse and recover loans to the vast majority of the
population directly through M-Pesa wallets, in Nigeria, industry
players like Paylater must operate differently.
• Since the Fintech is not a bank, it receives virtually no deposits
from the general public and offers no savings or current account.
• The service provided by One Finance & Investments Ltd (a financing
company licensed and regulated by the Central Bank of Nigeria)
must therefore pass through the classic channel of bank accounts
to make available to the end user, the sum of money claimed (in
the absence of mobile money services such as M-Pesa)
• Beforehand, Paylater will ask its users for detailed information on
their bank account (it must be a personal bank account with the
same name as the applicant registered on the platform).
PayLater: Quick online loans without collateral
A rigorous process based on Credit Scoring
@Orange_DV ; @MuxMi

4 | Comparison of various loan services*
Players M-shwari KCB M-Pesa Eazzy Loan M Coop Cash Tala Branch
Model Bank + Telco Bank + Telco Bank + Telco Bank + Telco Startup Startup
Total
subscribers
20,1m 9,8m 1,6m 3,3m 770K 750K
Number of
disbursed
loans
83,3m 15,4m 4,2m 2,8m 1,8m 1,5m
Total value of
disbursed
loans (KSh)
208Bn 48,2Bn 57Bn 8,7Bn 3,5Bn 2Bn
Loan portfolio
(KSh) 8Bn 2,4Bn 3,8Bn 860m 780m 400m
Daily loans 70K 21K 8,5K 1K 310 190
Monthly
interest rate 7,5 % 3,66 % 3,66 % 3,66 % 15 % 14 %
Default rate 1,9 % 2,9 % 3,1 % 2,77 % >10% 8%**
Minimum loan
(Ksh) 50 50 100 1000 2000 250
Maximum
loan (Ksh) 100K 100K 3m 100K 50K 50K
Source : Wapi Capital
https://www.linkedin.com/feed/update/urn:li:activity:6367692426735341568/?commentUrn=urn%3Ali%3Acomment%3A(activity%3A6367692426735341568%2C636863198529601
9456)# --- (**) https://www.businessdailyafrica.com/corporate/tech/4258474-4286464-o0sgn9z/index.html
* 2017 data
@Orange_DV ; @MuxMi

CONTENTS
@Orange_DV ; @MuxMi

5 | Upcoming trends
New industry players - Solar
• Surfing on the very promising niche of solar energy, several
startups have made their way in the sales of solar kits intended for
individual houses or SMEs. The most common is a closed model,
for which companies provide one or more solar panels of variable
power, accompanied by a battery and devices chosen according to
the needs of the customer : LED bulbs, TV, Radio, fridge, etc.
• Kenya's M-Kopa, which boasts 500 new households connected
daily, is a pioneer in this sector and has today distributed
hundreds of thousands of kits in Kenya, Uganda and Tanzania
since its launch in 2012.
• In order to lower financing barriers, startups operating in the
distribution of solar kits have adopted the "Pay-As-You-Go" model,
a system that allows their customers to finance their acquisitions
on credit by paying upfront a portion of the total amount of the
purchase, and the rest in small successive installments on variable
frequencies: daily, weekly or monthly payments. Once the total
number of installments are met, the customer then becomes the
owner of the equipment hence improving his credit score.
• Today there are more than a million solar home kits that have been
sold in Africa, with a current rate of about 40,000 new systems
installed per month.
• This business model, which has attracted no less than 360 million
euros in funding over the last four years, represents around 36% of
the total amount invested in African startups in 2016.
Alternative models: SOLAR PAY-AS-YOU-GO Examples of African start-ups
@Orange_DV ; @MuxMi

5 | Upcoming trends
New industry players – Payment hubs/ aggregators
Alternative models: Payment Hubs / Aggregators Examples of African start-ups
• E-commerce in Africa still accounts for only 2% of total e-commerce
transactions in the world. However, this segment is experiencing rapid
growth, with nearly 30% of new users per year since 2010.
• In order to put the odds on their side, the e-commerce players have
had to adapt their strategy to the mores of local populations, still very
often accustomed to payment in cash and who, for lack of confidence,
prefer to have the product in their possession before paying for it.
• The low rate of banking within African populations has made possible
the uprising of "Mobile banking", but meanwhile bank cards are pretty
much becoming agnostic of the payment gateway no matter the
banking establishment of its holder, mobile money services on the
other hand are still largely not interoperable and only work between
subscribers of the same network.
• This lack of seamlessness between payment solutions and the technical
complexity of their integration penalizes merchants and e-merchants,
who must enter into negotiations with each service provider in order
to authorize mobile money payments on their platforms.
• To overcome this situation, some Fintechs on the continent have
developed hubs or aggregators to accept all means of payment, from
cash to Mobile Money, and which facilitate the access to all digital
services on a single terminal or within an API for online integration.
@Orange_DV ; @MuxMi

Credit scoring and Mobile digital micro-credit in Africa

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Credit scoring and Mobile digital micro-credit in Africa