Are You a Kenyan (or African) Enterprise Operating in the Digital Lending Sector?

Consider The Following

A gentleman holding his smartphone while smiling — Thank you LoanBee! I can finally clear rent.

With an expected additional 167 million mobile units in Africa by 2025, the digital lending industry, which is primarily driven by increased mobile penetration, is set for exponential growth.

The growth will, in turn, inspire more digital lenders to set up shop. Therein lies the conundrum. What will differentiate one digital lender from the other? What will cause one to stand out, allowing it to attract more customers? Most importantly, what will determine which digital lender fails and which one succeeds?

Well, there is no magical to-do list that can guarantee success. However, there are things an aspiring digital lending enterprise can do to position itself as the most preferred option and increase the chances of success.

Find a Startup with The Best Credit Scoring Machine

One of the biggest pitfalls that has hounded already existing digital lenders is default. A high default rate translates to a business running out of money and going bankrupt.

Sure, a digital lending business can’t 100% escape default; but the lower the rate, the higher the chances of the enterprise succeeding.

That is where a credit scoring algorithm comes in. An algorithm that is powerful enough can accurately assess the repayment capacity of a borrower and drive the default rate to as low as five percent. In other words, a whopping 95% accuracy.

A powerful credit scoring machine can cut the default rate to just 5%

There is just no way your digital lending business fails with such a high repayment capacity.

However, bear in mind that the technology that can reduce default is still maturing — especially in Africa.

See, because mobile lending and mobile transactions are relatively new constructs that have ballooned in the past decade or so, the kind of data that can help to predict repayment potential accurately has only become available in the past couple of years.

Such data includes transaction histories, geographical information, and an accurate demographic. Combined with emerging technologies like Big Data, machine learning and Artificial Intelligence (AI), this data has the potential to create super-powerful credit scoring algorithms.

Entrepreneurs and innovators in the region’s tech industry have been at the forefront doing exactly that. Therefore, before launching your platform, aim to find a startup with a robust credit scoring algorithm that you can incorporate into your digital lending platform. It just might give you that edge that you need.

Find a Way to Mitigate Fraud

Statistics indicate that as of October 2018, over 25 percent of Kenya’s mobile users had fallen victim to SIM swap fraud. In South Africa, SIM swap fraud had more than doubled between 2017 and 2018, according to the South African Banking Risk Information Center (SABRIC).

As of 2020, the fraud is on the rise. The fraudsters will swap the SIM card and within a few hours, request as many loans a possible from as many digital lenders as possible.

Requesting fraudulent loans is as easy as that after a SIM swap

Often, the burden of this loan will fall on the digital lender’s side because, in essence, they disbursed the loan without confirming the identity of the borrower.

Again, similar to default, a lot of startups have developed powerful tools that aim to reduce fraud. Some bundle up the credit scoring algorithm and fraud mitigation as a package while others concentrate on just fraud mitigation.

To position yourself as a leader in the digital lending industry, it is imperative that you find the best fraud mitigation tool in the market. One, it will help your credibility, and second, it will protect you from losing money.

Ensure Your Platform Has an Intuitive User Design and Experience

The literacy rate in Africa is 70% as of 2019. That translates to a market characterized by varying levels of education — from the highly educated to those who have never stepped foot into a classroom.

As an entrepreneur who is looking to go into digital lending, creating a platform that caters to the educated, uneducated, and everyone else in-between gives you a competitive advantage.

A lady holding her smartphone in her right hand while pointing to something on it with her left hand. — How do I request for a loan?

To do so successfully, let your platform have an intuitive user design and experience. Essentially, that means a design that users can quickly pick up without a lot of explanation.

Minimize text and maximize graphics, but make sure the graphics are easy to understand. That way, irrespective of the educational background of the user, they can quickly figure out or intuit what to do.

Moreover, every single element of your user interface should work together to communicate the desired message. That means your color choice, images, graphics, and typography should all marry together to provide an intuitive interface.

Getting this right will guarantee that you do not alienate 30% of potential customers. Against a population of 1.26 billion, that equals to about 378 million people. Of course, smartphone penetration will come into play as well, but still, this is a huge number that you cannot afford to ignore.

Final Word

There is always more to consider when it comes to launching a business. With regards to digital lending in Africa, before narrowing it down to the nitty-gritty, the above three considerations should be at the top of your list.

Getting them right will give you a definite advantage in the market place.