Microloans via app

Monica Makona gets an overview of her finances in Tala app

Dar es Salaam (IDN/afr). Two years ago, 32-year-old street food chef Monica Makona wanted to expand her business. However, the bank denied her the necessary loan. The credit app Tala was her salvation. Within minutes, Makona received a small amount of money on her smartphone.

"It was a very quick process," Makona tells IDN news agency in an interview. "I received a notification from Tala that 20.000 Tanzanian shillings (10 U.S. dollars, note.) were deposited into my mobile wallet."

The cook works at the bustling Ubungo bus station northwest of Dar es Salaam's city center. There are a lot of women entrepreneurs out there who are using the credit app to keep their businesses going or grow them.

In East Africa, there are a number of digital payment providers looking to revolutionize the credit market. Many people do not have access to loans from traditional banks because they cannot show evidence of their creditworthiness.

Mobile money transfer is standard in East Africa

Since the mobile payment system M-PESA was introduced in Kenya in 2007, no stone has been left unturned. The ease of transferring funds from one cell phone to another has led to the development of a variety of digital payment functions away from banks. De facto cell phone credit can now be used to pay anywhere, anytime in East Africa.

Increasingly, international startups from the fintech sector are also catering to previously neglected segments of the population. Apps such as Tala or Branch enable people to obtain small loans at short notice, which are repaid in small installments.

Tala is headquartered in St. Monica and currently has offices in Kenya, Tanzania, India, Mexico and the Philippines. Francis Ndikumwami, the country director responsible for Tanzania, explains the company's approach: "Our mission is to give our customers choice and control over their financial existence."

Algorithm checks creditworthiness

Despite the low-threshold access, Tala verifies the creditworthiness of the applicants. The app's algorithm allows Tala staff to assess the risk of default within a maximum of 72 hours. This involves analyzing data available on cell phones, such as calls, text messages and mobile money transactions.

In practice, therefore, only a small amount is paid out initially, which grows as the customer's repayment history increases. Borrowers then have the option to repay the loan in seven, 21 or 30 days. Interest rates are between eleven and 15 percent.

Street chef Monica Makona started out with only 20.000 Tanzania shillings received, which in itself was no real help. In the meantime, however, it has been granted a credit line of 1.000.000 Tanzanian shillings (450 U.S. dollars, note.), which she can access at any time with her cell phone.

Concerns from data protectionists

But determining creditworthiness based on user data is causing some headaches for data protectionists. "Digital lenders must have the highest level of ethical standards to protect their customers' private data," says Joseph Mapunda of the government-owned Tanzania Communications Regulatory Authority.

Dan Karuga, Country Director of Credit App Branch in Kenya, assures a careful approach to data protection: "We have strict policies in place to ensure that our customer data is always protected."

Branch works similarly to Tala, but offers a much longer repayment period, ranging from four to 16 weeks. The company is headquartered in San Francisco, California and operates in Kenya, Tanzania, Nigeria, Mexico and India.

By its own account, Branch has made more than 15 million loans to date, totaling $3.5 million, to three million customers. (end)

Cover photo: Monica Makona gets an overview of her finances in Tala app. (Photo: IDN/Kizito Makoye)


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