While fake news and facts can create a huge disservice for people around the globe, alternative data to determine creditworthiness is helping countless people get student loans. That’s particularly true of Africa where much of society uses cash, and little data has been collected on borrowers.
In Kenya, banks aren’t in the student loan business, and Kenya’s Higher Education Loan Board (HELB), according to its 2016 annual report, doesn’t approve a significant portion (81 percent in 2014) of its student loan applicants. The HELB’s goal for 2018 is to increase coverage to 36 percent of applicants. In the meantime, alternative data may be able to fill gaps in funding. A handful of companies are tracking all sorts of different information to gauge creditworthiness.
Student Finance Africa, a Kenya-based startup, is determining creditworthiness in the country by collecting data from educational institutions, its mobile app, and its online loan applications. By using academic performance, records of attendance, and students’ mobile payment history, the startup can determine if borrowers are likely to pay back their student loans. The company is creating a credit algorithm that will determine if student borrowers should get loans.
“We are taking a fintech credit model, adding a few options for different payback periods to meet the needs of our borrowers, and adding financial training to the mix. For this market, it’s innovative,” says Chief Executive Officer Jennifer White according to Quartz Africa.
White noted the company is filling a need in a country where she says there are only three other private firms providing student loans which has resulted in a low college graduation rate among Africans. “We are solving a number of these challenges, with the greatest being getting more people into higher education programs through providing affordable, tailored loans for students and their parents,” she said in the report.
Other companies are starting to take the hint. Multiple startups have begun finding new ways to lend money effectively in Africa.
Take Jumo, the Cape Town-based company that was profiled in Quartz Africa. Jumo compiles alternative data by looking at the mobile money usage among would-be borrowers in East Africa. Jumo also uses this information to sell insurance which sets a precedent for expansion of the service. In Nigeria, a company named Social Lender relies on users’ social media presence to determine their ability to pay back loans. Also, the taxi-hailing app, Uber, teamed up with Sidian Bank in Kenya to provide loans to its drivers. Uber drivers have to complete a predetermined amount of rides and have a high average customer rating to be eligible for a loan from the Kenyan bank.
While students in Africa are having trouble finding funding for their education, students in the United States are arguably facing the opposite problem – too much funding. Every student attending an eligible university can take out federal student loans. The ease of borrowing often leads to unnecessary spending – sometimes even on things such as drugs and alcohol. This leads to difficulty in repayment as all that money must be repaid with interest.
Author: Donna Fuscaldo
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