US investor to offer loans on M-Pesa, Facebook data

A US company has launched a Facebook-linked mobile phone lending service that allows users to borrow and repay small loans through M-Pesa.

The service, accessible through an app dubbed Branch is set to raise competition for other M-Pesa-based loan disbursement platforms such as M-Shwari and KCB M-Pesa.

Matt Flannery, the co-founder of the peer-to-peer lending platform Kiva, said the company will be offering entrepreneurs up to Sh50,000 repayable in six months.

The American techpreneur said Branch will target small and micro enterprises that are in need of quick loans but are locked out by traditional banks which demand collateral and see them as high-risk borrowers.

Borrowers need to download Branch from Google Play, log-in with their Facebook accounts and can then begin applying for small loans charged a one-off fee of between six per cent and 12 per cent depending on the amount and repayment period.

Mr Flannery said the Android app awards users a credit score by remotely analysing information such as calling patterns, mobile money transactions and Facebook behaviour. This helps build a loan applicant’s profile to determine eligibility, he said.

Matter of minutes

“We have a ‘robot’ in the cloud — a machine learning algorithm — which analyses data from your phone, Facebook and other sources to determine how much to lend to you,” Flannery said. “Traditional banks are slow.  They make you wait in long lines and fill out forms. Branch will deposit the funds in your mobile money account in a matter of minutes,” he said.

The firm raised a total of Sh143 million ($1.4 million) in seed funding from two Silicon Valley venture capital firms for the Branch project. Mr Flannery said the app had already disbursed “nearly $1 million” (about Sh100 million) and there are plans to expand similar offerings to Tanzania and Uganda early next year.

The techpreneuer said the use of the ‘robot’ had significantly cut its default rate from a high of 25 per cent of its loan book when the firm had ‘very little data,’ about its loan applicants.

“Our ‘robot’ learned very quickly how to manage risk and it is improving each day,” he said, putting the current non-performing loan portfolio at about seven per cent.

M-Shwari was launched in November 2012 by Safaricom and the Commercial Bank of Africa to offer loans to M-Pesa customers based on their savings and repayment history. The loans are payable within 30 days and attract a 7.5 per cent fee.

Co-operative Bank in August last year unveiled M-Co-op Cash, an Android app which offers loans of between Sh100 and Sh200,000 repayable within a month at a one-off seven per cent processing fee.

KCB in March partnered with Safaricom to launch KCB–M-Pesa to disburse loans of up to Sh1 million repayable in six months at an interest rate of between two and four per cent per month.