This archive report was first published on 24 November 2019.
Mobile lenders have developed sophisticated methods to assess loan applicants' creditworthiness, often relying on subtle details that may not be immediately apparent.
According to Alternative Circle CEO Kevin Mutiso, borrowers who apply for credit between 7 am and 6 pm are more likely to be approved, as they tend to repay loans more reliably.
Research conducted by lenders has shown that borrowers who apply for credit between 7 pm and 7 am are more likely to use the funds for consumption purposes, rather than investing in productive activities.
Another factor that lenders consider is the age of the SIM card. Mutiso explained that lenders view borrowers with new SIM cards as less reliable, as they may not have a proven track record of using their mobile line frequently.
“A borrower stands zero chance of acquiring credit if their line is new, absolutely no chance, it is important for us to know that a borrower is reliable and that is one of the ways we determine that,” Mutiso said.
Regular M-Pesa activity, including deposits and withdrawals, is also used as a credit scoring tool. This helps lenders assess the borrower's transaction history and determine their likelihood of repaying the loan.
Additionally, lenders consider M-Pesa to bank activity, which provides insight into the borrower's cash flow. Whether a borrower has been listed at Credit Reference Bureaus is also a crucial factor in the loan approval process.
While the proliferation of fintech has enabled financial inclusion, some borrowers have been listed at CRBs due to serial defaulting. Digital lenders can access this data to navigate the default risk.
Even the way borrowers save their contacts can influence their loan eligibility. Mutiso noted that borrowers who save contacts with full names, such as Joseph Mokaya Nyakundi, are more likely to be approved compared to those who save contacts with shortened names or in Sheng.
Statistics also reveal that most people borrow from mobile lenders to pay school fees, while default rates are particularly high among younger borrowers.
Interestingly, Mutiso's research shows that there is no significant difference in borrowing patterns between men and women. However, married women are found to be reliable borrowers.
