Thanks for sharing this example from pacific islands, anything written on this you can point to? On Islamic finance I would say asset backed lending is always better and scalable models will look at embedded financing models where lending is tied to commerce, and not simply sending money to a user.
Great one Firas. In my opinion, Africa needs founders, investors and policy makers to work together to build basic or alternative infrastructure for both commerce and payments. Then people need to be incentivized to use digital payments so that commercial actions can be traced to payments and identities. That's the only way to build valuable data on the spending habits of the population. And like you mentioned, data sharing is key to enable building a collective user profile. But most importantly, there has to be a universal consequence for bad behavior in the network as a mechanism to reduce risk and induce good behavior.
In China Rui Ma reports that defaulters actually plead with Wechat and Alipay to be allowed back into the network after being banned because there just isn't any alternative to them when you want to live a relatively convenient life. This ensures users conform with the rules and is reflected in very low default rates.
Great points about the importance of developing a credit scoring system. Some examples of bottom-up development are evident from the Pacific Island countries of Solomon Islands and Vanuatu where credit registries, specific laws and regulations and the entire tech system to enable it was implemented by the Asian Development Bank.
Also, you are absolutely right about the fact that there's a lot of attention on access and not enough on financial literacy. I'd love to read any further work on that topic and successful implementation models.
On a separate note, have you examined the potential for Islamic finance to mitigate some of the risks? The fact that borrowers must back purchases with real assets (that act as a security) or that they must technically rent or co-invest could help reduce the risks of over-borrowing and indebtedness. I recently examined that in the context of Islamic microfinance in Bangladesh and Indonesia and whether it offers an ethical alternative to the ethical criticisms of conventional microfinance.
Thanks for sharing this example from pacific islands, anything written on this you can point to? On Islamic finance I would say asset backed lending is always better and scalable models will look at embedded financing models where lending is tied to commerce, and not simply sending money to a user.
Great one Firas. In my opinion, Africa needs founders, investors and policy makers to work together to build basic or alternative infrastructure for both commerce and payments. Then people need to be incentivized to use digital payments so that commercial actions can be traced to payments and identities. That's the only way to build valuable data on the spending habits of the population. And like you mentioned, data sharing is key to enable building a collective user profile. But most importantly, there has to be a universal consequence for bad behavior in the network as a mechanism to reduce risk and induce good behavior.
In China Rui Ma reports that defaulters actually plead with Wechat and Alipay to be allowed back into the network after being banned because there just isn't any alternative to them when you want to live a relatively convenient life. This ensures users conform with the rules and is reflected in very low default rates.
Great points about the importance of developing a credit scoring system. Some examples of bottom-up development are evident from the Pacific Island countries of Solomon Islands and Vanuatu where credit registries, specific laws and regulations and the entire tech system to enable it was implemented by the Asian Development Bank.
Also, you are absolutely right about the fact that there's a lot of attention on access and not enough on financial literacy. I'd love to read any further work on that topic and successful implementation models.
On a separate note, have you examined the potential for Islamic finance to mitigate some of the risks? The fact that borrowers must back purchases with real assets (that act as a security) or that they must technically rent or co-invest could help reduce the risks of over-borrowing and indebtedness. I recently examined that in the context of Islamic microfinance in Bangladesh and Indonesia and whether it offers an ethical alternative to the ethical criticisms of conventional microfinance.
As far as you know, is there one country in Africa who has setup this kinda open credit scoring services nowadays ?