This archive report was first published on 19 October 2019.
Tala's Digital Lending Journey: Balancing Credit and Financial Literacy ¶
As of 2019, over 380,000 Kenyans had defaulted on loans taken from digital lenders, making it challenging for fintechs to operate in the market.
Without a credit history or listing, borrowers could default and go unnoticed, allowing them to borrow from other lenders who were unaware of their creditworthiness.
Statistics from Metropol Corporation show that more than 7.6 million Kenyans are taking loans from multiple mobile loan apps, with about 2% defaulting on their payments.
Tala CEO Ivan Mbowa attributes the company's success to its ability to maintain a lifetime repayment rate of over 90%.
Too Much Credit, Little Financial Literacy ¶
Since its inception in Kenya as Mkopo Rahisi, Tala has faced numerous challenges in determining who is a risky borrower and who is not.
High-risk borrowers could easily beat the system and obtain credit from multiple lenders without being flagged, making it a zero-sum investment for digital lenders.
Today, Tala has disbursed loans to over 2.5 million customers in Kenya and targets 4 million globally in emerging markets.
The company operates in the Philippines, Mexico, Tanzania, and is planning to expand to India.
According to Mbowa, digital lenders have increased significantly, leading to too much credit and a lack of financial literacy among borrowers.
Assessing Creditworthiness ¶
Tala has developed a method to assess and score borrowers based on device data, behavioral data, and past payment behavior.
As a new customer, Tala assesses creditworthiness by looking at device data, behavioral data, and past payment behavior.
According to Mbowa, the lender looks at over 10,000 factors to determine a customer's creditworthiness.
The company harvests as much information as possible to score borrowers correctly.
However, this raises concerns about data privacy and the lender's access to borrowers' phone details.
Loan Limits and Review ¶
As a new customer, the question is whether you get the minimum loan limit or more.
Mbowa reveals that some customers may receive higher loan limits than the minimum of Sh1,000, depending on the factors assessed.
The lowest loan limit is Sh1,000, and the maximum is Sh30,000, which is being reviewed upwards.
