This archive report was first published on 11 November 2019.
On November 11, 2019, the Central Bank of Kenya (CBK) discussed the future of banking at the Fintech in the Savannah Festival.
The future of banking will be shaped by legacy banks, technology, and customer data. However, this cannot be achieved by the CBK alone, but will require the effort of banks, financial intermediaries, and mobile service providers.
Small-scale traders, such as the mama mboga in my neighbourhood, are often locked out of the formal credit system. They have limited mobile money transactions and no documented record of default, making them not creditworthy.
However, if we were to access their lending circle, payment patterns, and chamma history, we would better understand their micro-enterprise cash cycle and guide lenders on the time, amount, and repayment period of any credit extended.
Commercial banks, saccos, and other financial intermediaries have heightened interest in the SME segment, offering loans with or without security. However, the catch is getting the right credit provider within acceptable terms of the borrower.
Basic financial literacy on cash flow management and the digitisation of SMEs will enable the market to move from contextual services. We need to move from the point where all we can provide is money, and the qualifying parameters revolve around holding a physical bank account, to what other consumer data can be generated from these businesses, personal spending habits, and social capital.
MyBank, an online bank by business magnate Jack Ma, has lent out loans amounting to $398 billion to at least 16 million small companies, based on real payments data and a risk management system that looks at more than 3,000 variables.
Back home, the relationship between lenders and data custodians is such that we have a veiled stance towards privacy, locking out troves of useful data which if analysed, would boost the existing credit scoring mechanism.
By expanding the credit information bracket to include social data and other quantifiable ways, we can boost credit risk assessment and bring us closer to servicing both individuals and businesses.
As financial markets continue to evolve, so is innovation. Let us harmonise data for informed financial decision making and the changing face of the borrower of the future.
