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How Data is Powering the Digital Lending Space in Nigeria?

Data drives the core of many businesses and several brands have adopted different strategies for data analysis including data compilation, processing and application. It is no surprise that the digital lending space in Nigeria is not an exception.

Due to the economic downturn, there is a constant and high demand for credit in Nigeria, from small scale business owners to individuals with daily needs. Digital lending companies have worked hard to complement the efforts of financial institutions by offering efficient and timely loan disbursement to clients.

However, some factors can’t be ignored if these companies are to remain in business and that includes the customer’s willingness and ability to repay the loan when due.

To ascertain these factors, the personal data of customers come into the mix. Traditional lenders and formal financial institutions employed a different approach which involved one on one interviews, paperwork, collaterals and sureties which isn’t only a grueling process, but time-consuming as well.

Today, there are several technological innovations and tools for data analysis, but first here is how data powers the digital lending space in Nigeria.

Easier access to credit facilities

Data is of importance to these companies because like the rigid appraisal methods and high requirements of banks, they depend on digital information about a possible customer.

This is a problem that is being tackled by the digital lending companies in Nigeria, to a large extent. Not only have the grueling processes involved in loan disbursement been reduced to a minimum, the inconveniences including bias, the stress of manual verification, geographical constraints and several other factors have witnessed a turnaround with the shift to digitization.

Digital lending is much simpler and easier than traditional lending due to the tech innovations and automation processes that include data analysis, cloud technologies and imaging. Digital lending companies through access to the personal data of their clients can render efficient and inexpensive services.

Selection of Customers

The method for this has shifted from one on one consultation which is the case with formal financial institutions, to virtual contact. Without personal data detailing the name, age, location, proof of economic activity, mobile number and address proof, these companies would be allocating funds to ghost lenders with no possible means of recovery thus signalling the increase of operational risks.

Personal data is also used for credit appraisal of customers. Analyzing the financial status, income level, spending habits, tax returns and other data attributes helps them determine high-risk customers, detect fraudsters and confirm the authenticity of lenders from different data sources including mobile data, previous loans and other transaction records.

Digital financial inclusion

The digital lending space in Nigeria, despite some of its excesses, has offered digital financial inclusion and access to financial services to previously excluded groups. Payments, transfers, credit, withdrawals and even insurance are only a few types of financial services customers would have access to, based on their needs.

A wide range of individuals living in local communities might not only have to cope with the unavailability of financial institutions in their locality but also might not be literate enough to understand the complex formal processes involved too.

With access to data, digital lending companies can make digital transactions easier and accessible to these groups through the use of their mobile phones whilst taking possible steps to expand their reach and offers. All of this is possible through the use of data.

Recovery methods for agents

Disbursement of funds is always easier for Fintech companies than the recovery of these funds.

Some service providers offering informal financial services are not part of the consumer protection provisions that are readily available to traditional financial institutions and they rely on personal data to track delinquent customers.

Without access to emails, phone apps, contacts and personal calls, these debts would have to be waived off and considered as bad debt thereby making these companies run at a loss.

Final thought.

As the innovation in the fintech lending industry progresses, the continuous dependence on data to make loan decisions will be on the increase.

Automated loan decisions are the foremost feature and selling point of digital lenders and data will to these companies have the same value collateral has to banks.

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