In yet another example of how mobile technology is revolutionizing service delivery in Sub-Saharan Africa, application developers, data mining companies and financial institutions are using mobile usage data and social media activity to determine the credit risk of potential borrowers. These efforts are helping to surmount one of the most significant obstacles to extending credit in developing markets.
In developing markets, conducting the due diligence needed to assess a borrower’s credit risk is a challenge for two main reasons: geographic inaccessibility and little to no information as to the person’s credit history.
First, financial institutions typically have established in cities to be closer to the higher concentration of people and capital found in urban centers. These institutions have shied away from engaging rural populations because of high transaction costs due to poor infrastructure and a widely dispersed client base.
Second, a dearth of financial as well as vital records creates a significant impediment to assessing the person’s credit risk regardless of whether that person lives in an urban or rural area. Considering that Africa is home to the world’s fastest growing middle class, this is a significant missed opportunity.