By Jake Kendall
ENCOURAGED by the dramatic increase in the number of mobile phone users in the developing world, new financial technology (or “fintech”) players are attempting to disrupt the financial order in these markets: money lenders and informal remittance services.
Our initiative, the Digital Financial Services Lab, is trying to be a catalyst for this transformation.
For many people in developing economies, the only way to access the digital world is through phones with limited data connections, or by visiting an internet café. Their limited digital footprints mean that the algorithms that some fintech companies use to generate risk scores or personalized offers aren’t useful in these markets.
To succeed in this environment, local players are evolving models that tap into and create new sources of data on users.
In India, SERV’D is building an app that helps households to create simple work contracts for the informal workers they employ (e.g., nannies, drivers, cooks) and to pay them online. The data generated as a byproduct will capture the wages and other payments of the more than 400 million informal workers in India who previously had no way to show their income for loans and other benefits.
Another possibility comes from the data that Uber and other ride-sharing companies are collecting on their drivers’ incomes. CreditFix is tapping into this kind of data to lend to Pakistani drivers, allowing them to own their auto-rickshaw or taxi. Sidian Bank in Kenya has a similar program.
Still another example is Cowlar, a Pakistani company that has created a wearable device for cows. It collects data on their temperature, mobility and location, which translates into real-time intelligence for farmers to help them better manage their livestock. Cowlar is now considering how it might translate this “internet of cows” into financial products, potentially by discounting insurance for well-managed farms or by using milk-production data to justify loans.
Few consumers in developing countries have the luxury of regular paychecks. But some companies are creating clever offerings to help. One example from the developed world is Uber’s Xchange, which allows drivers to participate in short-term leasing programs (lasting only a few months) that require little money upfront. Another example is Malako, an early-stage startup in Uganda that has been experimenting with flexible lines of credit, managed through mobile phones.
Jake Kendall is the director of the Digital Financial Services Lab.