In today’s market where consumers have hundreds of lenders to choose from, the ability to build products for customers’ unique needs becomes increasingly important. And it is about pressing the right buttons. Annstella Mumbi, Tala’s senior country growth manager talks to Victor Adar on the current digital lending market and why there is need to expand financial inclusion.
Tala has upgraded its loan features to avail a flexible credit option dubbed “Jichagulie Due Date” giving customers the power to set their own loan due date; what’s the strategic importance of that move?
It is aimed at ensuring we put the power of control and choice in our customers’ hands. It gives customers the freedom to choose a loan repayment date that works best for them, not Tala. This is one of the many features of the Tala experience that offers customers increased choice and flexibility.
There is a recent trend where borrowers are increasingly failing to honor the loan due dates. Do you think your flexible credit option will pay off?
Our lifetime repayment rates have remained above 90% over the past few years. Having said that, we are constantly speaking to our customers to understand how we can better help them in their financial journeys. We learnt that not everyone’s income comes on a fixed date and inflexible due dates was one of the biggest challenges they were facing in day-to-day financial management. We upgraded to “Jichagulie Due Date” to help Kenyans overcome this challenge and make repayment easier for them. Our customers have the freedom to choose a loan repayment date that best matches their income cycle or salary pay date. We’ve seen a significant uptake of this feature by customers which goes to show that they are loving it!
How would you describe the digital lending market in Kenya?
Tala launched in 2014 as the market pioneer and since then, we’ve seen tremendous growth in this sector. Today, data predicts that there are over 300 digital lenders in the market. This has resulted in increased access to capital for small businesses and families, closing a significant market gap and expanding financial inclusion. The challenge, however, has been that a lack of regulations has enabled some “rogue” lenders to enter the market and bring harm to consumers. Tala was an early advocate for sensible industry regulation and supports the recently enacted Central Bank of Kenya (Amendment Act), 2021 and the implementing regulations, the Central Bank of Kenya (Digital Credit Providers) Regulations, 2022 which stands to streamline access for users, crack down on rogue lenders and set the bar for consumer protection moving forward.
You entered the Kenyan market in 2014, how many customers have you served thus far?
Tala Kenya has served over 3.5 million borrowers on the Tala platform to date with over Sh177.83 billion ($1.5bn) in loans disbursed since 2014 to date.
Digital lending is complicated to run as it requires different functions to operate seamlessly together including front-line operations and risk management. What tools/policies/mechanisms are you employing to ensure that merging these different facets work seamlessly?
First and foremost, as a mission-driven company, Tala has established a workplace culture that prioritizes honesty, open communication, and trust. Every member of our team is working towards a common purpose (to enable financial agency for the underestimated) and this shared sense of purpose guides our operations. By aligning our company values to our operating principles we have been able to deliver a seamless, consistent experience, even as we’ve scaled rapidly over the past 8 years.
Additionally, unlike some other fintech players, Tala manages its core lending functions in-house, which not only helps us to understand our customers better and give them a seamless experience but also helps us become trusted partners in their financial journey. We’ve built our proprietary underwriting and credit infrastructure from the ground up which also helps us move quickly to respond to market changes and customer demand.
It’s been five months since the Central Bank of Kenya started regulating the mobile money lending space. What, in your opinion, will be the ripple effect of that move on lenders and borrowers in an industry that had, for years, been left to its own devices?
The new regulation is timely and solves a much needed challenge – streamlining the digital lending industry. We believe that once mobile loan lenders are licenced by the Central Bank of Kenya it will ensure the ongoing flow of responsible credit to Kenyan consumers by advancing a much safer operating environment for Kenyans with responsible lending practices at the forefront; and cementing Kenya’s global leadership in financial inclusion and innovation.
We remain optimistic and anticipate that the rogue lenders in the market will fall off due to inability to be compliant with the enacted regulations and result in increased consumer safety in the digital lending industry.
The threat and reality of data theft and exploitation has made data security a matter of major concern to consumers and regulators globally, and is part of the reason the government moved to regulate mobile money lenders who regularly exploited and abused their customers’ data. What mechanisms do you have to ensure your customers’ data is safe?
As a global company, Tala has always followed best-in-class data security and privacy practices, which includes complying with applicable data protection legislation. In Kenya, this is the Data Protection Act, 2019 and its purpose is to protect individuals’ rights and interests. We put our customers’ interests in all that we do, which includes transparent use of customer data. For example, we never, under any circumstances, sell customer data or call our customers’ contacts.
It has been argued that the crowding of the mobile money lending space indicates a jostling by lending institutions to prop up dwindling profits as people shun brick and mortar lenders because of perceived unfriendliness, or rigidity towards the bottom of the financial pyramid. Is this a fair criticism? What is the lesson for financial institutions?
What the tech evolution has taught us is that product innovation must be centered around changing customer needs. This has been the biggest lesson for financial institutions especially in the last 3-5 years.
The market has become crowded with mobile loan lenders. And traditional banks are also vying for a piece of the pie. This was not the case five to ten years ago. As an example, currently there is Timiza, a product of Absa, Loop (NCBA bank), PrimeMobi (Prime Bank), Vooma by KCB, Equity’s Eazzy loan, just to mention a few. What does this trend mean to the future of lending?
It’s important to note that the skyrocketing mobile penetration in Africa is leading the way for making the region a global hotspot for fintech innovation. As it is widely known, Kenya continues to set the pace with regards to tech innovation globally, starting from M-Pesa and moving into the massive growth of other fintech sectors such as digital credit.
Underserved Kenyans are hugely benefiting from this fintech evolution, and traditional players are starting to see that these previously overlooked consumers are worth serving. This is largely a good trend. More players and more competition is usually better for customers.
Where fintechs have the advantage over traditional players is that we are more nimble and can more quickly respond to changing consumer needs. And many of us are exclusively focused on the underserved segment. We have the data and the understanding of the needs and challenges of this segment, which traditional banks usually don’t. Only 30% of the population worldwide has a formal credit record in a bureau and over 3 billion people globally are considered financially underserved. The unmet need for credit in developing countries is upwards of $2.1 trillion.
So there is a huge opportunity for both fintech and traditional players to partner together and provide a complete financial ecosystem that meets the needs of all.
