Photo: Monica Makona using her phone as if to get a loan. Credit: Kizito Makoye | IDN-INPS - Photo: 2019

Online Lending Firms Leave Digital Footprints in East Africa

By Kizito Makoye

DAR ES SALAAM (IDN) – When Monica Makona failed to obtain the bank loan, she badly needed to grow her business two years ago, she did not lose hope. Armed with her android smartphone, Makona tapped into TALA – a popular lending app she had previously downloaded – and within minutes she received the money.

“It was a very quick process, she told IDN in an interview, adding happily, “I received notification from TALA that 20,000 Tanzanian shillings (10 dollars) had been paid into my Tigo pesa mobile account.”

The 32-year-old street cook at a bustling Ubungo bus terminal in Dar es Salaam is one of many women entrepreneurs who have been using the app to secure soft loans for streamlining their businesses.

A handful of digital companies are working to revolutionise the lending market in East Africa, where many people are still trapped in the quagmires of poverty and have no access to loans from traditional lending institutions due to lack of documentary evidence proving their creditworthiness.

The advent of digital mobile money technologies across Africa has attracted innovative companies to harness the power of the internet in order to break down demographic and geographic barriers that have prevented people from borrowing money.

From business loans which rely on credit scoring algorithms to micro-loans based on a person’s social media reputation, the firms are striving particularly to help low-income women climb the economic ladder.

Depending solely on the data stored on the user’s mobile device, the digital start-ups have seeped down deeply into the hinterland to reach the underserved market, including self-employed women working in the informal sector.

Digital platforms including TALA allow people to request and receive short-term loans, while offering them time to repay in small instalments, according to officials.

TALA Tanzania country manager Francis Ndikumwami said the platform allows officials to assess the borrower’s credit worthiness within 24 to 72 hours, while giving them time to fulfil their loan requirements without any paperwork.

“Our mission is to give our customers choices and control over their financial lives,” he told IDN

The TALA app, downloaded by IDN reporter on his Android device, works by gathering data on texts and calls, mobile money transactions and personal identifiers to create profiles of potential borrowers.

While there have been some progressive gains for equal rights in Tanzania at legislative level, illiteracy and poverty rates among women remain much higher than among men.

Sustainable Development Goal Five (SDG5) calls for empowering women to enhance economic growth and development. Although the labour market today boasts more women than ever, pockets of inequality still exist, with women systematically pushed to the edge of survival.

According to the United Nations, it is vital to give women equal rights land and property, sexual and reproductive health, and for technology and internet to help achieve greater gender equality.

With its robust mobile money ecosystem that allows people to transfer money expediently and settle their utility bills on mobile phones, Tanzania has built a strong reputation as one of the pioneers of financial inclusion.

Speaking with IDN, a cross-section of female entrepreneurs said online credit facilities, notably TALA and BRANCH, have helped them cushion their businesses through turbulent times and during periods of uncertain income.

“When I requested the loan for the first time it was too small, but the amount has since increased remarkably,” said Makona.

She is now eligible, for example, to borrow up to 1000,000 Tanzanian shillings (450 dollars), which is instantly paid on her Tigo pesa mobile wallet.

While tech-savvy lenders tap the power of mobile technology to meet the growing financial needs of their customers, analysts warn that such companies must always demonstrate professional conduct to protect their customers’ private data and keep their reputation.

“Digital lenders must show the highest degree of ethical standards to protect their consumers’ private data,” said Joseph Mapunda, chairman of the online content committee of the Tanzania Communications Regulatory Authority.

TALA measure the creditworthiness of potential customer through a proprietary algorithm which automatically examines the customer’s cash flow and his/her willingness to repay.

To minimise the risk of default, the company said it starts by disbursing a smaller amount which grows with the customer’s repayment behaviour patterns.

“We always take calculated risks, which save us a great deal of time and money which would have been lost,” said Ndikumwami

Small-scale female entrepreneurs in East Africa usually struggle to obtain bank loans because they do not have physical assets to show to the lending institutions as collateral.

This initiative was inspired by a micro-lending programme in the Grameen Bank launched by Prof. Mohammed Yunus in Bangladesh to help poor people escape poverty.

Since its inception in 2014, Tala has issued more than 300 million dollars’ worth of loans in Kenya and Tanzania, the company said.

According to Ndikumwami, borrowers have three options for paying back their loans: in 7 days, 21 days or 30 days. He added that the company charges interest of 11 to 15 percent on the money it disburses.

Like TALA, Branch – another digital firm – offers loans from 5,000 to 500,000 Tanzanian shillings, with loan terms ranging from 4 to 16 weeks.

“We have strict policies that ensure our customer data is always protected,” said Dan Karuga, Kenya country manager of Branch.

Available on Google Play, the Branch app offers easy sign-up for users, who can create their profile directly in the app by filling out a simple form. Once their profile is verified, users can apply for loans and receive money in their bank accounts within minutes.  

“We hope to build a fair, secure and robust digital lending ecosystem in East Africa,” Karuga said. [IDN-InDepthNews – 04 July 2019]

Photo: Monica Makona using her phone as if to get a loan. Credit: Kizito Makoye | IDN-INPS

IDN is flagship agency of the International Press Syndicate. –

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