Micro-finance is a tool to foster economic development for the world’s poorest regions, and is often an answer to problems where the banking industry is not robust enough.
However MFI often focuses on the easy wins of mid-sized loans to small business owners in order to grow operations – sometimes part of female empowerment initiatives.
People want to borrow small amounts regularly, not for grand schemes or business investment, but to aid so-called ‘income smoothing’ on days that they do not work. For example in Myanmar, cash is king. People will live day-to-day on their earnings. Access to finance for farmers, small shop owners and the ultra-poor is very limited, leading them to seek out informal loan-sharks with the obvious risks attached.
ZigWay is a social enterprise start up in Myanmar that offers ‘nano-loans to lift people out of poverty’. In the gap underneath large bank lending and aid funded micro-finance schemes, it aims to give people an alternative to loan-sharks that often charge upwards of 100% interest for small 24hour loans – that to the spiral of debt.
I caught up with entrepreneur and co-founder of ZigWay, Miranda Phua, and she told me how data collection is at the heart of many of these schemes and how it works to bring down the cost of lending.
A struggle for any financial institution is to assess the credit worthiness of their clients. However in informal economies, people do not have bank accounts, credit cards or other means to demonstrate their ability to pay back the loans. There is simply “not enough data on non-repayments”, she says.
There are several precedents around the globe that have served as a model for ZigWay in Myanmar, using innovative solutions to this problem.
Tala, for example, lets people download an app that allows the company to glean certain data from their phone – such as number of contacts and geographical information – that have been deemed to be a more accurate determinate of trustworthiness.
Branch, working in East Africa, also uses the glut of information that is gathered by smartphones to make its lending decisions including: handset details, SMS logs, social network data, GPS data and call logs.
In Myanmar roughly one in ten people have bank accounts, but there are now more mobile phones than people – close to 90% of them are smartphones. It’s what has been termed technology ‘leapfrogging’, and has led to innovations that would not have been possible in other developing markets.
The thinking is that if you can show that you exhibit specific behaviours, such as regularly going to work or having a real Facebook account, the company is more likely to approve a loan. The risk to ZigWay and its equivalents around the world is much reduced – and the benefits for the users are quicker decisions.
To the Western sensibility, allowing access to your phone’s data so explicitly may be a huge red flag for privacy issues. However the leapfrogging process has also jumped the learning curve of how to treat access to personal data in Myanmar. Many people are eager to share all and sundry publicly on their social media accounts – there are instances of those being proud to receive their first ever credit card posting a picture of the thing on Facebook. On a more basic level, the less tech-literate will have their emails set up by the guy on a roadside stall, without ever knowing the password.
This means that getting information on what people ‘like’ or how they behave is – for friends to advertisers to loan companies – considerably easier than in other places. With all the caveats that then brings.
After a successful launch as a start-up, Miranda tells me that they are now looking to bridge the gap to between the day-to-day nano-loans business and the micro-finance industry. “We are automating the full loan process like the others,” she says, “but also working with micro-finance institutions to help them reach more customers – that is to say, we are the intermediary platform, rather than just a lender”.
Change is coming at a fast pace, especially in fintech (financial tech) and telecoms in Myanmar – and enterprises such as this can use that to drive forward development for the poorest sectors of society that are at risk of being left behind.