The credit data evolution – a powerful and progressive landscape
The evolution of credit data, which has resulted in the sharing of detailed credit information among credit lenders, is beneficial both at the micro- and macro-economic levels. Over just a few short years, we have seen some significant milestones in the processing of credit information, to the extent that we can definitely call it an evolution and even, arguably, a revolution in some aspects.
Following the gazetting of the banking regulations in 2008, the Central Bank of Kenya effected Credit Information Sharing (“CIS”). This instituted the process through which financial institutions submit information regarding their borrower credit history to a centralised location that would later share the aggregated data with other credit providers. These information hubs are today known as credit reference bureaus and they work to provide insight into the risk associated with potential or existing customers, allowing lenders, at their discretion, to differentiate between good and bad borrowers.
CIS has led to fundamental market shifts, as well as changes in how we approach business and connect with consumers. Greater access to information has triggered an evolution in the lending industry which has been further driven by digital technology and regulatory developments, with some of the greatest technology innovations arising from within our emerging markets ahead of more developed countries.
As an example, the use of mobile money was born in the Philippines, but Kenya was the first country to experience its full potential and is regarded as being a global leader in digital financial services. Today Kenya is a shining case study for the success of financial inclusion, across multiple layers of the traditional financial services offering as well as innovative new segments such as mobile lending. Credit information sharing has no doubt been integral within this journey.
The changing face of CIS
In recent years CIS has morphed from the submission of largely ‘flat’ data to a more multi-dimensional data form, which allows for a bigger, deeper decision pool for credit providers and greater financial inclusion for consumers.
Historically, bureaus only tracked and held negative data on customers. Today, most bureaus hold both positive and negative data, which gives a holistic and dynamic view of existing and potential customers. Therefore, credit providers were previously only able to make basic and somewhat limited risk decisions with flat and simple data.
Today, with the inception of CIS, credit bureaus have access to millions of lines of different and dynamic data sets with the TransUnion Africa database comprising well over 1.5 billion lines of data across Africa and the volume and velocity at which it continues to grow is exponential.
The value of CIS
We are moving away from a ‘default listing mind-set’ to one of ‘payment profile information’, which provides regular updates to create a full file view of the customer that takes into account potential future commercial behaviour and personalised trend information, as well as demographic, geospatial and historical information on the customer. This allows credit providers to make more informed decisions about prospective customers’ entitlement – or not – to credit lines and facilities.
This evolution was borne from the desire of credit providers to reduce the cost of lending to both the consumer as well as the lender. Now lenders are able to use far more robust risk management processes in determining best predictions of whether to grant the loan, based on their review of whether the loan will be repaid and at what cost. In addition, with online access to credit reports and other bureau solutions, credit providers have the ability to realise faster loan processing.
When lenders have access to a greater perspective; to deeper, more granular data sets they gain a far more in-depth view of a customer which ultimately allows for better segmentation between potential defaulters and non-defaulters. When you combine quality data with faster data processing and real-time outputs, lenders gain an edge, an instant advantage in responding to customer applications.
At a macro-economic level, improved credit information sharing creates opportunities for a greater cross-section of the population to access credit, particularly those with no access to tangible collateral. As we enhance and grow our credit sharing drive, we allow the magnification of previously under-served markets and ‘invisible’ consumers to become active members of the credit-granting industry. Access to credit on a greater scale undoubtedly enables greater financial inclusion translating into an escalation of economic growth.
Kenya: A successful CIS case study
Mobile advancements have been integral in changing how credit bureaus approach business and connect with both providers and consumers across the market, and this is particularly relevant for Africa. We have seen tremendous gains in financial inclusion across East Africa in recent years.
In Kenya, financial services access increased from 27% to 67% in just seven years, from 2006 to 2013. It is not illogical to speculate that 10 years earlier, financial access statistics would have been only in the teens or even single digits.
Much of this rise in financial services access can be attributed to the rise of mobile technology in Kenya as well as greater access to credit information through CIS-promoting regulations. Previously, consumers had to travel to a credit bureau to get credit information. However, thanks to an automated mobile-driven strategy, consumers can now access the information they need via mobile services, which allows for a significantly quicker turn-around time.
Twenty years ago in Kenya, microfinance providers expanded their distribution networks through brick and mortar. Undoubtedly, the single biggest factor driving the growth in inclusion in the region has been the rise of cell phones and mobile money. Between 2005 and 2014, Kenyan banks nearly tripled branches and quadrupled ATMs. Today, 86% of the population now lives within five kilometres of a financial access point.
So, it’s safe to say that almost all Kenyan homes have their own ATMs, their own online banking, their own private access to their bank of choice. Not possible? But of course… with the rise of mobile money and other mobile financial solutions, almost all Kenyans hold the power of their banking needs in the palm of their hand.
To look back again, about 20 years ago, the term ‘microcredit’ started to give way to ‘microfinance’ as practitioners realised all segments of low-income people needed a range of financial services, including savings, insurance and money transfers as well as credit. Today, a broad range of institutional types such as commercial banks, microfinance banks, credit-only MFIs, SACCOs and mobile money providers offer a wide range of financial products and services, all of which are underpinned by the credit sharing initiative as after all, greater access to information allows a greater ability to devise relevant, targetable and accessible products and solutions.
The greater inclusion of financial services access in Kenya has also had a significant effect on small and medium enterprises (SMES). The growth of SMEs is an important driver for the industrial development of Kenya and its ‘Vision 2030’ programme, which aims, through a succession of five-year plans, to transform Kenya into a more industrialised, mainly middle income country for its citizens, in a clean and secure environment. In this regard, a functioning credit reference system plays a role in reducing transactional costs in lending to SMEs, with positive effects such as more available credit, reduced prices and enhanced competition – ultimately to the benefit of the country’s economic growth. The growth of the SME sector highlights that CIS not only works to grow traditional lending industries such as commercial banks but also burgeoning and relatively new industries such as retail and insurance. Sharing data across industries can only improve the lenders view of the customer and therefore only improve access to credit ensuring sustainable economic growth.
With a firm focus on leveraging technology and our data base assets, TransUnion, which is the fastest growing credit bureau in Africa, sees itself as being able to provide a ‘one stop shop’ for an enhanced customer base.
We plan on growing our consulting and training divisions and the ultimate intention is to position our brand as a genuine strategic partner. This will enable TransUnion to play a role in key developmental initiatives such as job creation and education.
TransUnion operates in a number of African markets and is constantly looking at new markets. We understand what we do and we know the value that we can provide. We are ready and willing to target new markets where there are fundamental issues that we know we can solve. We replicate the footprints of our key strategic partners and understand their focus, their growth initiatives and the micro- and macro-economic factors within which they operate positioning us as the leaders in credit and risk information services worldwide.