Digital Saccos: An Innovative Way for Young People to Save Hassle-Free
The World Bank recently said Saccos would play a bigger role in Kenya if it was allowed to lend more money using technology and cash flow instead of multiple member deposits.
SACCOs in Kenya operate in an environment of limited liquidity, resulting from a variety of management, policy and product design challenges.
They only allow members to borrow three times their deposits and collateral from other members covering the full loan amount.
In Kenya’s systematic diagnostic, the World Bank said Saccos could benefit from capacity building and liquidity support to help them deliver MSME-friendly products and lend based on data and flows cash rather than deposits.
This development will be a game-changer by allowing Sacco to offer larger loan tickets and grow rapidly while fueling small and medium-sized businesses that lack affordable credit.
According to the Kenya Informal Business Survey conducted by the World Bank in 2016, over 60% of respondents ranked access to finance as the most important barrier (ranking it as the number one barrier).
The saccos of the future will not lend on the strength of friendly signatures but on a highly technical credit scoring model. In our case, this allowed MOMBO Sacco to exceed our lending targets by 115% and maintain a high quality loan portfolio.
For Saccos to transform, they will need to develop a risk measurement tool like our MOMBO Sacco M Score. This scoring engine applies unconventional rich data to the core underwriting model, expanding the lending space for individuals.
We were able to develop a system that selects users’ mobile phone data and e-commerce sales as additional data points to analyze consumer behavior as opposed to the thin file approach used by established players in the financial industry.
Saccos, especially with a young membership, cannot rely solely on binary methods that focus on primary demographics, credit reference bureau data, and customer-specific financial data to assess creditworthiness.
Most of the young people and the urban population do not have formal employment and survive on several gigs, small jobs that are not regular, and they do not have the time and patience to fill out papers when are looking to save or borrow.
Due to the nature of their jobs (mostly gig-based jobs), young people are restless and place a high value on time and convenience.
They want to start saving after a few self-integration steps on their smartphones.
Likewise, this segment of the population requires loan solutions that would not require pay slips and bank statements but lend to them based on other parameters such as lifestyle and regularity of their savings.
Therefore, Saccos will have to rely on new metrics such as long call duration, cash spend, frequent high-value mobile top-ups, transactions to pay specific bills to make decisions.
These member behaviors are generally seen as positive indicators, while low value top-ups, missed savings, etc. are associated with lower credit scores.
Lately, we have been experimenting with lightweight question-and-answer approaches that assess a customer’s intention to pay. A particularly valuable technique in the case of thin-file/fileless clients, where other data is sparse or the client has been saving for a few months.
Once Saccos are freed from member contribution limits and the need to rely solely on collateral, they will be able to lend more while maintaining high quality lending books.
As a result, the economy will open up dramatically, allowing small businesses to get much-needed loans without falling prey to the predatory lending of payday loans and expensive shylocks.
The future of Saccos will depend on technological disruptions in the industry regarding member onboarding, credit risk management and product innovation.
To join MOMBO Sacco, download the MOMBO app from the Play Store or AppStore. Follow the simple registration instructions and submit your membership application.