Cash call

By The Economist

Microlending might work better if it were more impersonal

GETTING a microloan is far easier than getting a bank loan. But in east Africa many people have access to an even easier source of credit. It takes just a few taps on a phone to obtain a short-term loan, which will arrive in a mobile-money account almost immediately. It is an exciting, scary development, says Dean Karlan, a development economist at Yale University.

Mobile wallets such as M-PESA and Tigo Cash have already transformed microfinance. In the African countries where they are widespread, microlenders no longer need to distribute and collect piles of bank notes—always a cumbersome task and often a dangerous one. VisionFund, which is part of World Vision International, a Christian charity, channels 95% of its Kenyan loan payments and 98% of its Tanzanian ones through mobile wallets.

Now mobile-network operators and their financial partners are rushing into lending. GSMA, an industry group, says that 45 mobile-credit services were operating in December 2015, four-fifths of them in sub-Saharan Africa. Some are growing fast: M-PAWA, a mobile savings-and-loan service in Tanzania, acquired 1m customers in just five months.

The mobile networks seldom compete directly with microlenders. Most of their loans are tiny—more nano than micro—and must be repaid in a month or two. They are strongest in Africa, where microlenders have always been scarce. But some are now offering bigger, longer-term loans. And mobile money is spreading: it has taken off even in Bangladesh, where microlending was born.

Mike Gama-Lobo of FINCA, a microfinance pioneer, is particularly excited by the possibility of fusing mobile money with traditional microlending. Mobile-network operators know a good deal about their customers from the phone calls they make and receive, and the records of money passing through their mobile wallets. FINCA and others are now trying to use those data to filter potential borrowers.

Microlending shows that villagers and slum-dwellers are pretty good judges of each others’ finances. But their phones often know more about them than their neighbours do. And nobody spreads malign rumours about phones.

First appeared at The Economist