In Africa, to secure a loan you now hand over your phone for a high tech financial health check
Before receiving a small loan in Tanzania that started two businesses, Martin Mathews didn't meet bank officials, show his ID or call anyone about his funding needs. His mobile phone stats were all one lender needed to know.
JUMO, the micro-financing unit of Cape Town-based AFB Pty, analyzed the 25-year-old's mobile usage and predicted he was likely to repay the debt. The company builds a picture of its customers from thousands of data points in calling records, ranging from who they've phoned to airtime and data purchases and other mobile transactions.
The information it collects has helped it increase lending to almost a million loans a month of less than $200 across eight African countries, Managing Director Johan Bosini said.
"What makes us different?" Bosini said. "We make credit decisions based entirely on mobile network data. How many calls you make, who are you calling, when you're calling, how much airtime are you using, where are you topping up, what kind of phone you have, whether you SMS or not. We have 10,000 variables for any individual."
Bosini's company is a part of a growing trend of financial technology start-ups in emerging markets such as Africa, India and China that are taking business away from traditional banks in the areas of credit, savings and insurance. They use the one piece of infrastructure they can count on: mobiles, and reduce expenses by going directly to the consumer for loans and deposits, without branches.
JUMO's approach differs many other micro-finance institutions, which would do the traditional banking checks or rely on community information in the absence of paperwork or documents, Thecla Mbongue, a senior research analyst at technology research and advisory firm Ovum, said. "This is an innovative way of targeting lower income segments, especially in Africa where a lot of people are unbanked and earn informally," Mbongue said. "They wouldn't qualify for loans in a traditional bank because they can't produce statements or bills."
JUMO's market is entrepreneurs who need capital, as little as a few dollars, to get businesses rolling like Mathews' cashew sales and chip wagon. In the early days after JUMO started in 2012, more than half of loans weren't repaid, Bosini said. The company doesn't chase defaulters and lends off its own balance sheet because "no bank was crazy enough to give us the money in the first place,'' he said. Now, the non-performing loan rate is down to 4pc after the firm tightened its analysis of customer risk. It has 3.5 million users in South Africa, Kenya, Tanzania, Ghana, Zambia, Mauritius, Uganda and Rwanda. JUMO operates in the ether like the digital wallets offered by PayPal Holdings, PayTM Mobile Solutions in India and Alibaba Group Holding. in China. At the same time, customers can withdraw cash through an agent such as a convenience store. "We've done 30-cent loans profitably,'' Bosini said. "It's all about getting your costs and administration paper thin." Interest rates are risk-based, varying between countries, but start at 10pc, he said. "It is changing as we learn more through the data."
JUMO is popular with its mobile partners because it brings them about $10m a year in revenue, Bosini said. Bharti AirTel, MTN Group and Millicom International Cellular increase income per customer through a fee of $1-$2 on each transaction as e-wallet deposits bounce around the system.
Regulators like the inclusive aspect of the service because it's available on the simplest mobiles, handsets used by 70pc to 90pc of the target market, he said. JUMO taps the part of the population that isn't formally educated, often neglected by banks, even though the percentage of educated Africans is increasing at a much slower rate than the poor and unschooled segment, Bosini said.