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Why use Alternative Credit Data?

You are a digital lender like Credpal, Fairmoney or QuickCheck. A customer signs up on your mobile app and requests a loan of N50,000. You run a credit bureau check and they don’t have any record of the customer, hence no borrowing history. What do you do? Do you trust them blindly and just give them the loan? This is where alternative credit data comes in.

Let’s start by defining alternative credit data. This refers to financial transaction data that is not included in traditional credit reports. It includes telco data, mobile money, bill/utility payments, rent payments, e-commerce, savings, insurance payments and other data types that help lenders make more informed consumer lending decisions. For instance, if a customer is a first-time-borrower but pays rent and utility bills on a regular basis while saving monthly through his cooperative, this data is typically not captured in a credit report or credit bureau score.

However, insights generated from this data is proven to be useful for credit assessment. In emerging markets like Nigeria, credit bureau coverage stands at less than 20% of the economically active population. Lenders are therefore left with no choice but to seek consumer data from non-traditional sources in order to gain a better understanding of their customers’ financial position.

Historically, traditional lending institutions (banks & MFIs) have relied on credit-bureau data to determine the creditworthiness of borrowers. This has been effective mostly for financially active bank customers. Unfortunately, only 40% of the adult Nigerian population has a bank account. This means that digital lenders who target the other 60% have no way of determining the ability of a borrower to pay their loan.

Interestingly, the rapid development of the fintech and digital ecosystem has introduced a vast array of data sets from which lenders can deduce much more insight into their target customers. With Nigeria’s booming fintech space of over 200 active players, lenders are now more empowered to leverage consumer data from multiple sources in order to unlock credit and financial services to underserved customers. Access to alternative data sets also enables fintech lenders to build innovative products tailored to suit the needs of specific market segments.

For instance, transactional data helps lenders to track consumer spending and is indicative of consumer spending patterns or habits, cash flow, income verification, employment status, location, blacklist etc. and these can also be fed into a scoring engine that generates credit scores for instant credit decisions. Access to transactional data in real-time enables lenders to fill information gaps leading to more accurate and timely lending decisions.

Enter the CarmaChain Data Marketplace.

CARMACHAIN aims to truly democratise access to credit in Nigeria by connecting lenders with the data they need to make more informed lending decisions. We achieve this by connecting lenders with alternative data sources in real-time and on a peer-to-peer basis.  In other words, CARMACHAIN is a decentralised data marketplace that enables sharing of alternative data among fintechs and other service providers on a peer-to-peer basis while also enabling these fintechs/service providers to monetize their data.

In summary, access to alternative credit data is of significant benefit to both consumers and lenders alike. A consumer’s digital footprint offers a more comprehensive view of their socio-economic activities thereby enabling lenders to significantly increase acceptance/approval rates for thin-file and first-time borrowers.

For more information on how you to leverage alternative credit data for your business, do contact me through femi@carmachain.com