Kenyan Mobile Lenders Embrace AI to Boost Business and Reduce Default Rates

The use of mobile loan applications to take loans in Kenya increased in Kenya during the global economic slowdown due to the coronavirus pandemic and the persisting war in Ukraine. Digital financial service providers in Kenya are now adopting machine-learning strategies to help them weed out serial defaulters.

A photo of a person’s hand using a calculator app on a phone with dollar bills and a notepad around it

Tala is one of the leading mobile lending apps in Kenya and among the first to use machine learning. It uses AI to improve its business and reduce defaulters. AnnStella Mumbi, the general manager of Tala, said in an interview with K24TV that Tala has a platform that uses smart AI systems to look at a lot of data and find out how people borrow money

In the interview, she spoke about how Tala which is  at the forefront of implementing machine learning enables them to determine three things when you want to apply for a long-term loan which includes;

• Curbing fraud
• The ability to repay a loan
• Finally, your willingness to repay

CURBING FRAUD:

Mobile lending is a common way of getting credit for many people in Kenya who have low income or no bank account. But it also comes with the risk of fraud. According to the Kenya Deposit Insurance Corporation (KDIC), mobile lending fraud cost Kenyans about 4.5 billion shillings (40 million US dollars) in 2021.

To prevent this, mobile lenders need to verify the identity of their customers before giving them loans. One way to do this is to send a one-time password to the customer’s phone number. Another way is to use biometric authentication, such as fingerprint scanning or facial recognition, which are more secure than passwords.

Verifying the identity of customers has many benefits for mobile lenders in Kenya, such as:

• It helps to stop theft: Fraudsters often use fake identities or stolen phone numbers to get money from mobile lenders. By checking the identity of customers, mobile lenders can avoid falling into their traps.
• It reduces the risk of money laundering: Money laundering is when someone gets money from illegal sources and tries to make it look legal. Mobile lenders can avoid being used for money laundering by verifying the identity of customers and tracking their transactions.
•   It increases customer confidence: Customers who know that their identity has been verified are more likely to trust mobile lenders and use their services. This can improve customer loyalty and satisfaction.

THE ABILITY TO REPAY LOAN

Many Kenyans use mobile lenders to borrow money, but some of them fail to pay back their loans on time. This can lead to higher interest rates and being blacklisted by the Credit Reference Bureaus (CRB).

Mobile lenders usually check how fast you pay back your loan to see if you can afford another one. Some of the factors that can affect your ability to pay back a loan are:

• Income: Your monthly income is very important for paying back your loan. If you don’t earn enough money, you may not be able to pay back your loan.
• Credit history: Your credit history shows how well you have paid back your previous loans. If you have a good credit history, you are more likely to get a loan with lower interest rates.
• Employment: Your employment status also matters for paying back your loan. If you have a stable job, chances are high to pay back your loan faster than if you are unemployed.
•  Interest rates: The interest rate on your loan can also affect your ability to pay back your loan. If the interest rate is too high, you may have trouble paying back your loan.

If you fail to pay back your loan on time, there are consequences that can make it harder for you to borrow money in the future. You can also be sued by the lender and lose your assets. This will also damage your credit score. To avoid these problems, you can do some things to help you pay back your loan, such as:

•  Financial education: Financial education helps you to manage your money better and avoid getting into debt. One can learn how to budget and save money to pay back your loan.
•  Credit counseling: Credit counseling helps you to come up with a plan for paying back your loan if you are struggling. It's important to get advice from experts on how to deal with your debt and improve your credit score.
•  Debt consolidation: Debt consolidation helps you to reduce your monthly loan payments by combining all your loans into one. You can pay less interest and have more time to pay back your loan.
• Loan modification: Loan modification helps you to lower your monthly loan payments by changing the terms of your loan. By negotiating with your lender to get a lower interest rate or extend the repayment period.

WILLINGNESS TO REPAY

Here is a possible rephrased paragraph that sounds more human:

How much a person is willing to spend on a certain product or service is called willingness to pay. It also shows how risky it is to lend money to someone and what interest rate they should pay.

Some of the things that can affect how willing Kenyans are to pay back their loans are:

•  Income: Kenyans who earn more money can pay back their loans more easily, so they are more willing to pay.
•  Assets: Those who own more things, like land or houses, can also pay back their loans more easily, so they are more willing to pay.
• Credit history: Kenyans who have paid back their previous loans well are seen as less risky, so they are more willing to pay.
•  Purpose of the loan: People who borrow money for something useful, like starting a business, are ready to pay a higher interest rate than Kenyans who borrow money for something fun, like buying a new phone.

When Kenyans pay back their loans, mobile lenders can lend money to more people. This can help more people access financial services and grow the economy. Some of the benefits of being willing to pay for loans are:

• Access to more loans: Those who are willing to pay can get more loans approved, and maybe even borrow more money.
• Lower interest rates: People may be able to get lower interest rates on their loans if they are willing to pay.
• Better credit scores: Individuals who pay back their loans on time will have a good credit score. This can make it easier and cheaper to borrow money in the future.
• Improved financial well-being: Most individuals who can handle their debt well can improve their financial well-being and build a better future for themselves and their families.

Many people around the world do not have access to formal financial services and use mostly cash in informal businesses. This makes it hard to avoid defaulting on loans. Mobile lending has a stable payment rate of about 90%, which has been the same for the last two years after COVID-19. This shows how mobile lending is innovating to serve customers better.

IMPROVING BUSINESS AND REDUCING DEFAULTS: MOBILE LENDERS AND MACHINE LEARNING

Mobile lending is a big business in Kenya, but it also has a lot of challenges, such as defaulting customers and data abuse. Machine learning can help mobile lenders improve their business and reduce default rates in many ways, such as:

• Improving credit scoring: Machine learning can use a lot of data, such as financial history and mobile usage patterns, to help lenders find borrowers who can pay back their loans and offer them better terms. It can also help lenders avoid lending to borrowers who are likely to default.
•  Fraud detection: It can spot fraudsters who try to cheat the system by using fake identities or stolen phone numbers. also by monitoring transactions and user behavior and alerting lenders if something is wrong. This can help lenders to protect their money and discipline defaulters.
• Personalized loan offers: By customizing loan offers for each borrower based on their needs and preferences. This can lead to more satisfied customers and fewer defaults.
• Improve customer service: Finally, it can make customer service faster and easier by automating some tasks, such as loan applications and reminders. This can free up staff to focus on more complex tasks and provide a better experience for borrowers.

      Conclusion

    In Kenya, many people get loans from their phones, which is very convenient and fast. But this also has some problems, like people not paying back their loans, getting cheated by the lenders, or using the money for illegal things. Some lenders are using smart machines (AI) to solve these problems and make their businesses better and safer. AI can help lenders look at data, check who can pay back their loans, offer different kinds of loans, and talk to their customers.

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