With the advent of innovation, Africans are gradually ascending the ladder of the ‘financial services value chain.’
In the last decade, revolution in mobile money on the African continent has seen remarkable growth, thus driving the region as a global leader in mobile money innovation, adoption, and usage.
In countries with a large underbanked population, more customers are leveraging their mobile phones to access quick funds with digital lenders pointing to also grow their portfolios.
The underbanked have made a massive digital footprint with the use of mobile wallets, last-mile distributors, and fintech making data points a solid predictor of a default rate.
In all this, credit data for the underbanked populations is not readily available, however, CARMA a Nigerian-based P2P data marketplace startup is helping lenders build proper credit assessment for their clients to solve the credit data challenge.
Techbuild.africa caught up with the founders of CARMA, Ted Martynov, and Femi Oluyide. Ted also serves as the Chief Executive Officer while Femi doubles as Country Manager for Nigeria
In this chat, the founders took us through how CARMA is providing data for lenders to create a proper credit assessment for their clients.
The increasing demand for digital borrowing has shown high default rates and delinquency, largely on the part of poor borrowers.
Owing to this, lenders have been faced with challenges in creating a proper credit assessment for their clients as credit data for the underbanked populations is not readily available.
Despite the presence of credit bureaus in some sub-Saharan Africa countries for over a decade, the rate of collected credit histories is barely more than 15 percent.
However, all does not appear gloomy as the underbanked through mobile wallets and last-mile distributors have made a massive digital footprint which is pointing to a solid predictor of a default rate.
CARMA is a one-stop-shop marketplace for lenders, where you can find alternative data points for the underbanked provided on a real-time basis.
Launched in Kenya in 2020, the company went to market in Q1 2021 in Nigeria.
Currently, there are three organizations already present exchanging data, three are testing/integrating and nine are stepping in soon.
The data ecosystem is growing rapidly and gives financial institutions a view on customer behaviour of the underbanked which undoubtedly will be transformed into better quality credit decisions and subsequently more available financial services.
CARMA’s API links databases of companies that hold KYC and transactional data of the underbanked and aggregates with established data aggregators such as public registries and financial APIs.
Data contributors turn their data into a revenue-generating asset while keeping ultimate data control as it is offered on a peer-to-peer basis.
The startup is a break-in for lenders allowing them to reach the unbanked while also driving financial inclusion for consumers who have no access to formal financial services.
Femi stated that the key objective of Carma is to help in bridging the information gap that enables lenders to give credit, as that alternatively bridges the financial inclusion gap.
Femi further said that if a population has more than 50 % of its people having no access to credit while stating further that the reason they’re not having access to credit is not that lenders don’t want to lend, but because to a large extent, lenders don’t know who they are lending to, right.
“And because we are not a predominantly credit economy, it means that more people have never accessed credit.
So if you’re going to expand a loan portfolio to people who have never accessed it, who are new to credit, you need data beyond traditional credit data. And that’s what we provide lenders”, Femi added
Carma helps to bridge that information gap that will make lenders comfortable while lending to the underserved.
“Let’s say we talk about the unbanked and there are some that are still doing some transactions whether informally or formally.
If we can bring that information through to the lender, the lender will be able to make decisions about and able to adequately or effectively do some assessment on them, and then give that credit”, Stressed Femi
Carma achieves this by providing a one-stop API that enables lenders to access data from multiple and verified sources, such that they can make those decisions they need.
“When we bring that data to them, they know about their life study, pending patterns, they know how they are paying their bills, then it puts the lenders in a better position to make decisions about these people. That’s what we’re doing.”, Femi explained
Adding his thoughts as well, Ted spoke about how CARMA is making this data readily available. According to him, the more people use mobile wallets, make orders from the internet and have relationships with the last mile distributors, they will always leave their digital footprints.
“And the way we introduce the data is that we go directly to organizations where they have the footprint and build integration with their data.
So practically, if you will consider giving a loan to somebody, you will just pick their databases of multiple FinTech organizations and mobile wallets, etc.”, Ted added
Lenders have better chances to find information about the underbanked with the aforementioned organizations rather than with some traditional data contributors, like the credit bureaus, or companies that operate and scrap data from bank accounts, as they are quite a few in the market.
Ted explained that these organizations provide their customers with a widget so they can contribute data from their bank account to lenders and that’s definitely helped lenders a lot to understand credit and consumer behaviour.
“But the bottleneck is you still need to have a bank account. And that’s what we speak on 30% of the population.
So we activate other 70% because we’re bringing their data to the market and make them visible to lenders.” Ted said
State of financial inclusion in Africa
Speaking from Nigeria’s perspective, Femi explained that the government has made its own effort in bridging this gap by pushing a number of platforms for mobile money, however, there is still a huge gap that indicates data needs to be filled.
“I would say because we are years behind, there’s so much catching up, we need to do to have all hands on deck in terms of providing or bringing innovation to the table.”
According to Femi, Nigeria alone has a 74 trillion Naira credit gap, thus both the gap and opportunity are huge as financial inclusion goes beyond giving out credits, there is also savings, insurance and investment.
“And that’s what we’re doing, bringing the data about these people to those that need the services, but the whole idea is to bring the data where it is, so in terms of financial inclusion, we’re making progress, but there’s still a lot of work to be done.”
What makes CARMA unique?
Ted explained that CARMA as a company provides data as a service.
“We provide a layer of infrastructure for lending businesses, that helps them to acquire necessary data points to make smarter credit decisions.”
CARMA basically provides lenders with access, particularly to data of underbanked. And according to Ted, this data will help lenders to make smarter credit. decision and deploy the fund smarter, and will expand the volume of finances they can provide to other people.
“If you know something about the person you’re going to give a loan to, is way easier to make this the smart credit decision without this data, so that it’s our business about unique a unique differentiator is that we focus exactly on the data of underbanked.
“The key differentiation is acquiring data from the bank because we take this data directly from the repository of companies that have this footprint including data from mobile wallet and last mile distributors.
So all these data come from people who have bank accounts, so we give lenders data of all the underbanked people, which helps them to make smarter credit decision, bear less risk and deploy more funding and serve more people as a consequence.”
Femi who has over a decade of experience in credit reporting said that CARMA is the first platform that will reward contributors for sharing data.
According to Femi, contributors have always asked about the benefits of working with digital lenders, especially the big ones.
“So we’ve come to the table with a win-win for everyone. One, there’s a social impact, of course, and the benefits of sharing these data, making this data available, so that Nigeria can have easier access to credit, especially the underserved.”
What has been your story in terms of onboarding, the unbanked and enabling financial inclusion has been your story so far, as far as India is concerned?
Femi explained that CARMA has signed up some partnerships with some institutions in Nigeria and is also at various stages of integrating them while stating that the startup has gotten good feedback from lenders and data contributors in Nigeria.
“So there’s a high level of API integration at different levels with these companies. So as we speak, CARMA’s platform and API are live and working.
The more onboarding CARMA is executing, the more data that becomes available to lenders.”
Adding to this, Ted mentioned the angle of social impact while stating the importance of data to banks so as to unlock access to financial capacities for the unbanked.
Ted who has a background in consumer lending stressed the necessity of companies’ openness in contributing their data to lenders and other financial institutions because that’s something that can really change the narrative of people not having access to loans.
CARMA has raised early-stage venture funding backed by Microtraction and expects to attract about 700,000 queries to be made per month by lenders looking for thin-file borrowers’ data in Nigeria.
As stated by the founders, the chances of finding this data elsewhere are close to nothing.
Featured Image: Femi Oluyide and Ted Martynov (CARMA Founders)
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