Many individuals in Rwanda lack formal identification that enables them to access financial services. As a result, financial institutions in the region charge their borrowers high interest rates – often up to 30% per year.
The challenge: gathering credit data
In frontier markets, MFIs face the challenge of gathering credit data for making lending decisions. These include credit scores, identification, passports or government ID cards, bank statements, lending history or collateral.
In addition to high operating costs, a lack of borrower data to support lending decision drives costs up for individuals seeking financial services. High interest rates cover costs and protect against loan defaults when the credit risk is unknown.
The solution: alternative credit data
Alternative credit data is information that is typically not included in a credit report. Usually it comprises financial data and non-financial payment data collected from borrowers by non-traditional lenders. Alternative credit data can assist lenders in their financial decisions – especially for under-banked loan applicants.
The method: digital credit scoring
Financial institutions can use alternative credit data to do digital credit scoring. Digital credit scoring is a technology that allows lower transaction costs and instantaneous loan approvals and disbursements. By using digital credit scoring, credit officers in microfinance banks (MFBs) and MFIs are enabled to make more informed lending decisions. This can lead to stronger loan portfolio performance, better collection rates and lower interest rates.
How Oradian enables financial institutions to use digital credit scoring
Financial institutions can plug third-party digital credit scoring applications into Instafin, Oradian’s core banking platform, via API integration. The digital credit scoring tool is configured to ‘talk to’ Instafin.
When credit officers log into their Instafin dashboard to see loan applications, loan performance and borrower information, they can also see the credit score provided by a digital credit scoring app.
Through API integration, fintech providers and Oradian will be able to provide access to real-time credit scores for credit officers at MFIs and MFBs.
Ready to improve your MFI with Instafin?
Now is the time to participate in financial inclusion in Rwanda. Oradian provides visionary financial institutions with a cloud-based core banking system designed to enable you to become more competitive and grow in your market.