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Giving Credit where it’s due
Closing the gap in Africa's credit market
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Hey 👋🏽 Caleb here.
There’s an awkward gap between African businesses and digital lenders.
It’s hard for lenders to find good borrowers, and businesses struggle to secure loans.
And it’s all about how credit scoring happens right now.
In this edition, we partnered with Yabx, a fintech using AI to create credit scores from mobile data.
Let’s dive in!
Across the world, car loans put drivers behind the wheel.
Mortgages give families a forever roof over their heads.
When people use credit cards, they shop more, and this higher spending grows the economy.
And for small businesses, trade credit is how they stay afloat when things get rough.
Strong economies are built on credit.
![](https://media.beehiiv.com/cdn-cgi/image/fit=scale-down,format=auto,onerror=redirect,quality=80/uploads/asset/file/3100cc83-d45d-4f5a-b8f6-e1e31bb6b1bb/Untitled__39_.png?t=1721727542)
But, credit isn’t just handed out. You earn it by showing you can pay it back.
Traditionally, you can show this by using your credit score.
A credit score is a grade for your borrowing habits, and it’s built when you take credit over time and pay it back.
Lenders use business credit scores to decide if they want to give credit to a business.
But for many small businesses in Africa, it’s hard to show creditors they’re trustworthy.
Credit Scoring in Africa is broken
Africa's credit scoring system works similarly to markets where everyone uses banks.
80% of credit data comes from bank. But many small businesses in Africa are left out of traditional banking.
![](https://media.beehiiv.com/cdn-cgi/image/fit=scale-down,format=auto,onerror=redirect,quality=80/uploads/asset/file/3df712d2-17ae-4263-95ab-b7e1ad697865/Untitled__40_.png?t=1721727604)
Instead of banks, most transactions are done with cash, or through mobile money and fintech apps.
And this leads to thin files, where there’s limited data to score a business.
Thin files are a problem for credit bureaus, and in the end, everyone loses out:
Excluded merchants turn to friends and family (if they’re lucky),
Others turn to loan sharks who slap them with harsh loan terms,
While banks miss out on potential customers.
So the big question:
Is there a better way to lend to small businesses in Africa?
![](https://media.beehiiv.com/cdn-cgi/image/fit=scale-down,format=auto,onerror=redirect,quality=80/uploads/asset/file/0ef2e81f-649b-4d42-a04f-fb4118f224e7/Rajat__1___2_.jpg.png?t=1721727659)
Rajat Dayal spent more than a decade heading products and partnerships at Tech companies.
And he got to see how mobile payments were taking off.
New payment systems, built entirely on phones, were being set up to link businesses and their customers.
It worked great for wallet transfers and payments, but not for getting credit.
Digital lenders were trying to fill the gap with short-term loans, but they struggled to find reliable borrowers because of a lack of data.
There had to be a way to use mobile money data to create a better credit system.
So in 2018, he launched Yabx - a fintech that uses AI to create credit scores based on a borrower’s mobile data
They started in Africa, where mobile phones had the most promise for closing the credit gap.
They team up with telcos, payment providers, merchant platforms, e-commerce platforms, and PoS terminals to track how potential customers use their phones and spend money.
They use this data to build personalized credit scores.
When you repay on time, your credit score goes up, and you’ll find it simpler to qualify for bigger loans.
This info is passed on to credit bureaus, banks, and digital lenders.
Why Yabx is betting on Africa
![](https://media.beehiiv.com/cdn-cgi/image/fit=scale-down,format=auto,onerror=redirect,quality=80/uploads/asset/file/483892b4-1566-40e3-afd3-b33dbbe09a73/Untitled__42_.png?t=1721727721)
After five years in Africa, Yabx is counting on two things:
The need for short-term loans among African businesses
And how mobile phones can hand out these loans, and help with collection
Last year, payments to businesses to mobile money accounts went up by 14%, hitting almost $74 billion.
Mobile money has built a digital business ecosystem packed with data.
And now, it’s turning into a goldmine for merchant insights.
Yabx has sifted through over 100 billion data records across its partner networks so far.
They use this data to help banks, telcos, and digital lenders offer tailored mobile loans.
In Uganda, Yabx works with Airtel, a telco commanding 45% of the market.
![](https://media.beehiiv.com/cdn-cgi/image/fit=scale-down,format=auto,onerror=redirect,quality=80/uploads/asset/file/48b761a4-b8d8-4ed4-92a8-9da085003c00/Untitled__43_.png?t=1721727807)
“When we dug into how Airtel users handle their wallet, we found that over 400,000 transactions were bouncing because of insufficient funds,” Arpan Mondal, Yabx’s Regional Head - Africa, says.
Using these insights, they helped Airtel create Quickloans, a product that gives customers credit when a transaction doesn’t go through.
It works like a bank overdraft, but better:
AI can predict if someone will pay back, based on their mobile money activity
And they can track if the funds are used for business or personal needs.
This keeps default rates low, letting Yabx lend responsibly to those who really need it.
![](https://media.beehiiv.com/cdn-cgi/image/fit=scale-down,format=auto,onerror=redirect,quality=80/uploads/asset/file/8b75d275-ecf0-4305-8e95-1c240758ecfb/WhatsApp_Image_2024-07-24_at_13.52.59.jpeg?t=1721818791)
The startup is tapping into tons of transaction data that used to be only available to banks.
So far, they've used this tech to score over 20 million people and businesses in Uganda and Tanzania.
They've lent out over $160 million within 12 months, mostly through mobile phones.
It makes sense for credit scoring in Africa to be based on the payment methods most people use.
And as mobile payments soar, they want to unlock more data, share it with lenders like banks and telcos, and bring more businesses into the credit loop.
Africa needs stronger credit scoring models.
But, lenders don’t have enough data.
Because of this, businesses default and get stuck in debt.
And banks and telcos, despite their financial strength, stick to lending those they know.
But fintechs like Yabx are using AI to close the gap and help businesses get the extra funds they need to grow.
Do you think using AI for data will improve credit scoring in Africa?
Hit reply and let us know.
And if you want to know more about Yabx’s work on credit scoring, get in touch with them.
And that's a wrap!
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