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Data driven analysis key to Africa’s lending space

The COVID-19 pandemic is disrupting millions of people’s livelihoods in Africa, with much larger impact on poor households and small and informal business. According to the World Bank,  poverty is also expected to increase by 2%, with 26 million people falling under the poverty line. 

As the continent continues to fight the virus, the economic impacts continue to grow while the economic outlook is already worsening with growth expected to collapse to a negative 1.6% and a real per capita fall of 3.9% - the worst reading on record. 

So what does this mean for the credit business in Africa ?

The pandemic has led to an increase in defaults of SME and consumer loans creating a huge impact on creditworthiness. Lenders are concerned about debtors’ ability to meet their payment obligations. 

Over the last couple of years, countries in Sub-Saharan Africa have been able to introduce more accessible digital financial tools that facilitate greater levels of inclusion and economic involvement. Innovative technologies such as mobile money applications have made it possible for the lending industry to provide quick consumer micro-loans. The imposed measures that were implemented at the beginning of the year to curb the spread of the virus have affected economies resulting in job losses, pay-cuts and business failures among SMEs. Due to this, African lenders have dramatically reduced granting new loans in order to keep over indebtedness under control. 

For lenders to provide solutions and credit assessment to protect their customers and themselves in these uncertain times, one of the key solutions is to leverage data to make credit decisions - this can be done by providing access to data supplied by other lenders, customers and other external data sources. 

The crisis has made many organizations to focus on shifting to digital frameworks, building digital systems for data driven decisions can drastically expand lending capabilities. Data analytics in the financial sector is growing and will become a crucial aspect for the sector as it allows for enhanced risk analysis between the lenders and borrowers. 

Incorporating data analytics can play a fundamental role in making better credit decisions and build greater knowledge and insights that are crucial to the lending sector. For example, according to an article from Finextra, the UK government has been using data to look at trends in the credit market to help it understand whether the support schemes it has put in place are reaching the businesses that need it most. 

Harnessing the power of data will play a crucial role during turbulent times and even more when economies begin to recover. The transition to utilizing data will help the lending sector cope with the present crisis and also serve as a long-term solution for credit-risk management.