Article provided by Experian
Have you struggled to get funding? Do you feel invisible to financial institutions? In this article, we look at a discussion between Mike Anderson (NSBC Founder & CEO) and Jaco van Jaarsveldt (Chief Commerical Strategy & Innovation Officer – Africa) from Experian about financial inclusion challenges and how you can overcome them.
What are the systemic barriers to financial inclusion?
When you apply for any funding, your personal credit profile must be solid. Next, they will look at your business profile, and only after this will they consider giving you funding.
Before COVID, four out of 10 South Africans started their credit journey with a retail store card. Many people consider retail store credit to be bad, but it was where people started to show how they dealt with credit. During COVID, with the shutdown of industry and stores, the retailers stopped lending in totality. Subsequently, the retailers have only recovered 50-60% of their lending. This has caused retailers to be less likely to offer credit, and this has caused there to be a large component of people to be excluded from the financial industry. So, how can we get these people to be included? At Experian, our core focus is on using other sources of data which are not traditionally used in granting finance to build a positive view of an individual to indicate their willingness and ability to pay back financial loans.
How can we use technology to reach underserved populations?
We are all aware that our data is being used by companies for various reasons. The big tech companies use your data to give you a better customer experience.
Through the consent of Experian’s customers, Experian takes the customer’s data to use it for analytics. We use machine learning capabilities, AI and generative AI to create value propositions that create inclusivity. This data is then used to help the customers get funding, as the funder uses the data we created to evaluate the risk involved in doing business with you.
What are the ethical considerations surrounding alternative credit scoring and data collection?
The starting point is absolute consumer consent. The key is we are going to use your data to benefit you, and we are transparent about what we will use the data for. Secondly, we will only make the data which we create available to a funder or credit provider with the consumers’ consent.
How can financial inclusion contribute to economic growth and social injustice?
SMEs are set to employ 95% of the working force by 2030 in South Africa but this can only be done if alternative methods are found to help improve financial inclusion which will positively contribute to economic growth.
This can be done in three ways:
1. When applying for funding make sure your individual and business credit scores are sound.
2. Don’t be afraid of letting your data be used to your benefit, make sure it is done with your consent and on a platform you trust and believe the platform is using it for your benefit. You do this by making sure you can see how you benefit from them using your data.
3. Understand the worth of your data and the value of it to create financial inclusion for you as an individual and business.
These alternative sources of data improve or boost your traditional credit score or create stand-alone scores that predict risk or probability of repayment.
What is the value of financial and credit education?
It is crucial to understand what it means to use the money you get to the bettering of your business. Many times why financial applications fail is because of a lack of financial education. The NSBC offers education through their weekly newsletter and the Build a Business Academy and when you register on the Experian UP website, you can watch a series of videos to help you with your financial journey called “the GeleZAR course”.
What role does financial education play in promoting responsible financial behaviour?
The key is promoting responsible financial behaviour. Through financial education, you can understand what you are asking for and align it with what you need versus what you want. Through education, SMEs can get themselves funding-ready. On the funders’ side, they need to be clear about who they will lend to and what type of funding they offer so that they are not misaligned with requests that they will never grant.