Imagine you’re applying for a mortgage. If you’re one of the 2 billion without a bank account, (unlikely given you’re reading this) odds are you can’t get access to working or investment capital through institutional means. You don’t have a financial identity. And, as far as banks are concerned, you’re non-existent. Conventional capital markets are not designed to uplift the poor who have expensive dreams. Such dreams are reserved for the wealthy. The reality is that you’re not going to be given a second chance to get that dream house, apply to college or even travel to visit loved ones, if you’re deemed unworthy of credit.
“The important score that I had no choice over and determined what I had access to was my credit score,” explains credit score provider InVenture’s founder, Shivani Siroya at a Wired Money talk in London. Oft talked about, dreaded and at times vainly flaunted– the credit score as well as the lack of it has erupted an entire industry.
Aside from traditional scorers like FICO and Experian, a new wave of businesses like InVenture are trying to expand financial inclusion through the use of ‘big data’ to provide the unbanked with an alternative credit score. Backed by Google’s venture capital investment arm GV, Mesa+, Lowercase Capital and other investment firms, InVenture is the brainchild of former United Nations Populist Fund (UNPA) member and Ashoka fellow, Shivani Siroya. It is designed to bridge the gap between small business owners and capital access in South Asia and Africa. With the launch of Mkopo Rahisi, an android app in Kenya, the company has made 40,000 loans in Kenya alone, with a repayment rate of 85%. Siroya’s startup sits at the intersection of two interesting issues; fast access to credit and reliability. InVenture solves both issues by pushing a set of innovative products to micro-entrepreneurs in Kenya, India and South Africa. Its working capital management tool, called InSight, can be downloaded as an android app by customers. This portable accounting tool allows for the creation of a credit score using the firm’s algorithmic data synthesizer, InScore. By analyzing and synthesizing a number of data points on consumer demographics, real-time cash flows and behavioral patterns– all from the user’s mobile money accounts– InScore enables lenders to gauge the reliability of borrowers, in this case micro-entrepreneurs. InVenture conveniently allows lenders to track repayment rates within individual portfolios on what appears to be a digital metrics dashboard (InVision).
It’s not hard to see why non-traditional microfinance providers like InVenture and Kiva have done so well in Africa, given the low interest rates and unconventional access. What’s interesting, however, is the prominence of business models around the use of mobile data and social media to ratify borrowers. InVenture is among a new milieu of companies calibrating data including the length of your phone calls, frequency of bills paid and the validity of your social connections to determine your credit-worthiness.
If you’d told me a couple of years ago that I could get a loan by providing access to my Facebook profile, I’d have laughed it off as a marketing gimmick by loan sharks while chuckling at the thought of my not-so-credible Friday night selfie.
Fast forward to the present day: the consumer lending landscape has evolved to expand access by processing your social profile. Hong Kong based lender, Lenddo, vets customers through the examination of user connections on Facebook and character references. Other lenders like LendUp operate similarly, causing concern about the innate issues around gauging a person’s financial worth on the basis of his digital ‘friend’ circle. Combing through the people a person chooses to associate with, in order to determine his financial capability, lends itself to discrimination. It’s likely that a person would be acquainted with others in similar economic conditions, perpetuating a vicious cycle of poverty. Moreover, the increasing anonymity of people assigning a thumbs up to your daily online ramblings and the broad set of people we call friends online, reduce the probability of lenders being able to accurately sift through the noise.
While social media privacy has too high a price tag attached to completely give up, less invasive big data companies like InVenture and Cignifi, focusing on mobile money behavior patterns seem to be paving the road for increased innovation in the underbanked market. On the path to B2B diversification, the company is partnering with conventional financial providers as well, to increase access at the target customer base. Using real time cash flow data to score business owners, instead of penalizing them for lacking a financial identity, is keeping dreams alive and families happy.
Stay tuned to hear from the founder herself on InVenture’s next steps–