Supporting the development of inclusive financial markets in Kenya

Using Alternative Data for Financial

Decisions:

Lending to Farmers Using Nontraditional Data

 Farmers needs are beyond agriculture operations financing
Flexible financial instruments might be required to meet their needs

REASONS WHY PEOPLE BORROW CREDIT PER LIVELIHOOD

CATEGORY

Agriculture Employed Own business Dependent Casual

~34% access
74%
69%

some form of
56%

credit. Largely
50%
48%

42%

39%
informal

35%
23%
19%

19%
18%
16%
14%

12%
12%

11%

11%
11%
10%

10%
9%

9%

9%
9%
8%
7%

7%
6%
6%

6%
4%

4%
4%
3%

3%
3%
3%
2%
2%
2%

2%
1%

1%
1%
~ 3% of

H OU SE / L AN D
P U RP OSE S

V E H ICL E
EM E RGE N CY
DAY- TO- DAY

OTH E R
PAY OF F DE B T
AGRICU LTU RE

E DU CATION
BU SIN E SS

national bank
N E E DS

credit portfolio
goes to
agriculture

FinAccess, 2015
 Informal sources are the main type of ag credit
SOURCES OF CREDIT FOR ALL TYPES OF NEEDS IN
AGRICULTURE LIVELIHOOD CATEGORY SOURCES OF AGRICULTURE CAPITAL

Informal Moneylender 0.1% ASCA / Banks (savings, current

CHAMA/ SACCO, 0.8% accounts), 0.30%
House/ Land Bank or 0.2% ROSCA, 4.1%
Buyer Credit 0.2% Agro-dealers
Credit Card Family / inputs credit ,
1.0%
Friend / 0.30%
Government e.g. HELB, Youth 1.2% Neighbour,
MFI 2.0% 11.3%

Banks (savings, current accounts) 2.5% Buyer

CHAMA / ROSCA 3.0% Credit,
12.8%
Mobile banking 3.4%
Own savings/
SACCO 3.4% Last harvests
Shopkeeper 5.0% surplus, 86.7%

Family / Friend / Neighbour 5.7%

ASCA 6.1%
Local shop goods credit 10.7%

0.0% 2.0% 4.0% 6.0% 8.0% 10.0%12.0%

FinAccess, 2015
Challenges in agriculture credit scoring

Ag actors largely lack sufficient and reliable conventional data

The ag produce markets are largely informal over 90% hence weak
documentation

Weak financial transactions trail - much of the transaction are

cash based, 97% of all national transactions

Weak methodologies for use of alternative data

Emerging credit scoring data in the agriculture sector
(general credit needs & ag capital)
1. Collateralisation of 5. Machine learning and
receivables
social media
2. Assets and performance score
6. Data mining
3. Inputs purchase / character
scoring / peer scoring
7. Credit reference bureau
4. Airtime and mobile money data
transactions
+ Collateralisation of receivables
Supply chains financing: mainly delivery invoices from blue chips buyers
Amount of credit is based on a % of delivered value and as per the tripartite agreement
The buyer undertakes to make remittances through the seller account held in the financial
institutions.
Credit period averages 30 to 90 days
In events of prolonged payment delays, debts could be converted into short term loans
National movable assets registry underway
Example: http://mobipay.co.ke/ (IT platform, banks, milk processors, farmers)

Warehouse receipts
At infant stages.
Tested for wheat and maize
National regulation underway
+ Assets and performance score
Use of business assets and performance as a measure of
credit worthiness
Platforms that digitise assets and business performance e.g.
livestock details for use in credit, insurance and input financing
decisions
Details include valuation of the animal, output records,
geotagging, agronomic programmes e.g. vaccination tracking etc.
Example: http://www.agrilife.co.ke/
+ Inputs purchase / character / peer scoring
Agro-dealer led credit scoring
Agro-dealer acts as first line credit score unit based on their client
knowledge
Example: http://farmshop.co.ke/ testing an agro-dealer led credit
through its franchisees.

Group based scoring by FSPs

Most common is group lending or guaranteed lending
Individual lending for groups members coming up (requires further
innovations mobile based systems emerging)
Mining group and individual financial profiles in ASCA / ROSCA / Chamas
+ Airtime and mobile money transactions
Algorithm using a combination of mobile money
transactions, airtime usage and lock-in savings account
details

Case study: http://fsdkenya.org/publication/how-m-shwari-

works-the-story-so-far/
+ Machine learning and social media
Machine learning aided algorithms: Mobile based Apps that use various
data ranging from
Mpesa data (mobile money wallet)
Social networks data e.g. Facebook
Calls, SMS and Mpesa logs - transactions messages on phone (accessed via App).
Geotagging
Handsets data

FSPs examples Tala https://tala.co.ke, branch https://branch.co, Pesazetu,

Data service providers examples https://farmdrive.co.ke

Datasets: individual, social, agronomic, environmental, economic, satellite data
+ Data mining (the gold within)
Much of the collected data during application and appraisal stage is
hardly utilised by financial institutions in making lending decisions

Understanding correlated drivers to good or bad loan repayment using

existing data (application forms, call reports, credit reference data,
cashflows, appraisal, ROSCA & ASCA data) etc.

Digitisation of physical credit related data with high correlation to repayment

behaviour
Identification of correlated repayment drivers
Developing scores based on the good predicators and segmentation
Challenges in alternative data for credit scoring
Consumer protection

Data privacy and access

Consumer consent

Data availability and authentication

High cost of credit by emerging alternative credit providers (short

tenure, high interest products)

Outside the regulation scope

 Michael Mbaka
Senior Innovations Specialist
FSD Kenya www.fsdkenya.org
michaelm@fsdkenya.org
+254 721 83 93 83