FIRM: An information solution to the challenge of rural financial inclusion

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FIRM: An Information Solution to the Challenge of Rural Financial InclusionUnlocking the power of non-financial data to enable financial inclusion

© 2010 Experian MicroAnalytics. All rights reserved.

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PERC’s Alternative

DataInitiative

(ADI)PERC galvanizes the inclusion of alternative data for use in credit granting as a means of financial access to mainstream lending markets for the financially excluded

alternative = regular payments data from telecoms, energy utilities, mobile (pre)payments, fast moving consumer goods supply chain data, agricultural supply chain data, and other such non-financial services and transactions


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0%

5%

10%

15%

20%

25%

30%

< $20K $20-$29K $30-$49 $50-$99 $100K+

2009/2010 2005/2006

Access to Credit Resulting from Non-Financial Data

by Household Income


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The Limits of Tradition Financial Data Models to Bring Data Online

Non-financial service firms don’t have clear incentive to report to a bureau in the traditional way.

► Prepayment reduces value of “disciplining” consumer

► Transaction counterparty gains nothing by reporting

► Providing data for free so bureaus can monetize seems unfair

Little uptake of data on most people (pre-paid or transactional) over past decade.

A lot of our focus has been on how to get these data furnishers to share data.


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► Non-financial payment information

● Pre-paid utilities

● Telecom prepayments

► FMCG supply chain (P&G, Nestles, Coca Cola)

► Other SME suppliers (e.g., in construction)

► Agricultural supply chain information

● E.g., coffee wet mills collect data on acreage, bushels, coffee berries per bushel, bean quality, price, sale….for season after season after season

● Similar data in tea, dairy, etc.

Potential alt data in emerging economies


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What is FIRM?

FIRM is a new initiative by Experian, the world’s leading consumer information services and risk analytics firm and PERC

FIRM aims to leverage digital technology to gather non-financial information in real time to create a financial identity, credit risk profile and income estimate of a potential borrower, especially those outside the financial mainstream.

FIRM is not a credit bureau. It does not collect or centralise any information. FIRM provides a solution for lenders when a bureau has no report.

Conducted a feasibility study sponsored by Bill and Melinda Gates Foundation in Kenya December 2012 – May 2013


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FIRM seeks to overcomes hurdle: the incentive to share data

Because alt data providers are reluctant to turn over their whole database, FIRM does not store data. Data furnishers only provide data on each individual request they receive, leaving them in control of their database.

Because alt data providers resist giving data for free so that others make money, FIRM shares revenue based on the value of the data.

Because alt data providers are concerns about customer fears of privacy, FIRM requires that consent be obtained each time the applicant’s data is pulled.


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The FIRM Network Structure


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FIRM and the Agricultural Supply Chain

Large/Medium Buyers

Processors

Farmer

Small Holder

SME

Large/Medium Suppliers

Banks

MFIs

SACCOS

FIRM

Information

Information

(e.g., Coffee wetmills,

tea factories,

dairy processors)

(Agri inputs)

FIRM Report

VAS such as Score

Biometric ID in

Economies where

needed

Sa

les

Pu

rch

as

es

Ad

va

nc

es

Ac

ct

Rec

Ac

ct

Rec

Loan

product


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Advantages for the lenders

Better Data: Lenders get access to new data, available for the majority of the potential borrowers and are able to better predict credit risk and affordability.

Lower Costs: Use of FIRM reduces origination costs as data that was manually collected is now available digitally.

Can ease the entry of larger lenders into lower income segments without altering their lending models very much.


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Advantages for the borrowers

Fairer, more inclusive credit access: Experience and research demonstrate that by using non-financial data, lenders extend affordable credit to a much greater percentage of low income, female, and minority borrowers.

Access to more affordable mainstream credit: Borrowers get access to competitive financial products since their credit risk is better accessed and start being reported to credit bureaus, becoming credit visible.

Protections: Borrowers have control over this information being accessed, as they need to give their explicit consent, limiting chance of consumer backlash for unauthorized violation of privacy.


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The need for FIRM

Why FIRM, given new digital finance MNO driven options like SMART (Philippines), M-Shwari (Kenya), why share data rather than have holders enter financial markets

FIRM will enable lenders to digitally provide a broader range of financial services

► A lot of new digital finance provides small, short-term loans (often month payback period).

► To identify which BoP, MM borrowers can afford longer term loans for investment, a more 360° financial view is needed—willingness and capacity

► A more comprehensive historic view of income cycles also allows lenders to better structure products, e.g., payment cycles that match up with agricultural income


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What Our Feasibility Study Found

Data furnishers:

► There are data sources that are being digitized in agriculture (tea, dairy)

► The question of confidentiality, loss of control and fairness is a major hurdle, i.e., incentives design is key to data access.

► Large strategic players are less willing—seek to capture revenue for themselves, other players unwilling to share with strategic players; challenge to developing a comprehensive view

Large lenders:

► Willing to service down market if down market risk assessment segments can be made to conform to their risk assessment processes.


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201 West Main Street Suite 202-DDurham, NC 27701 USAwww.perc.net+1 (919) 338-2798 x803

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http://www.perc.net/

FIRM: An information solution to the challenge of rural financial inclusion

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