Pathways into the consumer credit market: New research released by Omidyar Network and InterMedia

Posted November 17, 2015

By: Scott Gardner and Dr. Anastasia Mirzoyants-McKnight

Financial inclusion stakeholders continue to emphasize the importance of affordable and accessible credit products for increasing financial inclusion. Access to affordable credit serves as a bridge to greater economic growth and stability, particularly for the poor. It helps individuals seize economic opportunities that would otherwise be lost, reduces their vulnerability to financial shocks and minimizes their exposure to illegal or high-cost lenders. The reality is many do not yet have the necessary skills or education to use a loan effectively and to repay it; some need budgeting help more than they need a loan. A loan for those not ready for credit-related responsibilities can result in over-indebtedness, which perpetuates and deepens poverty.

Low- and middle-income countries face several challenges as they try to bring formal credit to their populations. How do you build access to credit for people who have no formally recorded financial track record and credit history, typically used to determine creditworthiness? How do you provide access to those who never even considered applying for a loan with traditional/formal financial institutions because they do not perceive such options as accessible to them? And, among all those unengaged with formal loan facilities, how do you determine who would be a good candidate to assist in receiving a formal loan?

These questions inspired and drove the exploration of alternative credit channels and credit reporting systems documented in Omidyar Network’s latest report: “Big Data, Small Credit: The Digital Revolution and Its Impact on Emerging Market Consumers.” The report explains the challenges in developing effective business mechanisms to deliver formal credit to emerging markets by bringing to the forefront the views of current and potential consumers on the benefits and tradeoffs introduced by alternative credit systems, including the use of personal financial information.

Omidyar Network partnered with InterMedia to evaluate the effectiveness and potential of two existing big data small credit (BDSC) products, Lenddo, in Colombia, and M-Shwari, in Kenya, in servicing credit to BOP groups. The two countries’ BDSC products use different credit scoring systems that assume varying levels of privacy and trust. The research not only focused on novel and disruptive credit offerings, but also offered a cross-country comparison of market context and product models. The study captured:

  • Consumer use of digital media and related behaviors
  • Attitudes and opinions toward financial institutions
  • Knowledge, attitudes, use and experience with financial products
  • Knowledge of and attitudes towards privacy and trust in the financial sector


Colombia has a peculiar lending market, where a person who wants to be considered for a loan is required to provide a large amount of personal information to a formal financial institution, including information typically deemed “sensitive” by the consumer. While the “high bar” set by formal financial institutions for credit may prevent many from accessing formal credit, it did stimulate the rise of innovation and entrepreneurship in the credit sector, including the emergence of new informal lenders who leverage non-traditional consumer data to tap into the huge market of potential credit users. InterMedia research explored the practices and consumer experiences of one such innovative market newcomer – Lenddo, an online loan assessment platform.

  • Lenddo currently operates in the Philippines, Colombia and Mexico.
  • Lenddo draws data from common social networking sites to understand their consumers’ online behaviors when determining the creditworthiness of potential borrowers, including the size and quality of their social networks, as well as the intensity of engagement with the members in their networks, and online spending patterns.
  • These data are converted into a “trust” score that is used to determine whether an individual can obtain an unsecured, short-term, small loan from Lenddo’s partnering financial institution.


Kenya is the birthplace of the distinctive digital financial platform, “mobile money.” Initially a platform for digital person-to-person transfers, mobile money is now filling financial service gaps by delivering a range of financial products, including savings and credit products such as M-Shwari, to previously underserved populations.

  • As of 2014, seven in 10 Kenyan adults use mobile money services and 63 percent have accounts registered in their names.
  • M-Shwari is a joint savings and credit product by Safaricom M-Pesa (the dominant mobile money provider) and the Commercial Bank of Africa (CBA).
  • The service is offered exclusively to registered Safaricom M-Pesa users, where CBA serves as a lender and M-Pesa as a delivery channel.
  • M-Shwari is by far the best known and most widely used mobile money value-added service in Kenya with awareness at 64 percent and use at 17 percent of adults.
  • Currently, loans are given for 30 days with a possibility of a 30-day extension; the credit line is capped at 50,000 KES ($500) with a 7.5 percent interest rate per month. The credit limit is calculated for each user individually, based on accumulated M-Shwari savings, M-Pesa account deposit-withdrawal activities, airtime purchases, and the use of voice and data services on Safaricom mobile phone accounts.

Borrowing Behaviors

InterMedia research will help BDSC providers identify and act on the challenges in reaching underserved populations. For example, in Colombia, the biggest reason individuals take out loans (almost 70 percent of all borrowers) is to invest in their businesses or homes. In Kenya, consumers take out loans to cover unforeseen expenditures (especially medical emergencies, child births and deaths).

Figure 1. Top five uses for loans among Kenyan and Colombian adults.

Omidyar blog  1Source: InterMedia BDSC study in Kenya (N=152) and Colombia (N=150), August-September 2014.

Privacy and Trust Issues

Issues surrounding personal/private information when accessing a loan are important ones, and we were most interested in identifying thresholds for personal, private and absolutely confidential information, and how these shift depending on the expected outcome of sharing – sympathy from a neighbor or a loan from a formal lender.

Most Colombians worry that criminals are able to access the personal information they share with financial institutions, by far their greatest concern. Kenyans are more concerned that their personal data will be accessed by either criminals, the internal revenue authority or another financial institution.

Figure 2. Top privacy-related concerns among Kenyan and Colombian adults.

Omidyar blog  2Source: InterMedia BDSC study in Kenya (N=152) and Colombia (N=150), August-September 2014.

Along with concerns about information access, the study explored in great depth consumer trust, especially in formal and informal institutions, mobile service providers and regulatory bodies. Trust is a fluid concept that is not consistent across countries, institutions, different segments of a population, and different contexts. Trust is typically formed by familiarity with an organization as well as the number and quality of recent experiences with the organization. The BDSC study shows that Kenyans tend to place their trust in mobile money services, while consumers in Colombia trust the banking sector.

Figure 3. Trust in financial institutions among Kenyan and Colombian adults.

Omidyar blog  3

Source: InterMedia BDSC study in Kenya (N=152) and Colombia (N=150), August-September 2014.

Findings from “Big Data, Small Credit: The Digital Revolution and Its Impact on Emerging Market Consumers” concluded that:

  • Participants are most concerned with their privacy when they step outside their routine financial behavior patterns and consider using less familiar financial organizations, especially innovative organizations that challenge traditional financial sector rules.
  • Bottom-of-the-pyramid (BOP) groups will take some time to adopt BDSC products unless there is a concerted effort among legislators and providers to equip them with necessary technical and financial literacy skills, and encourage them to take up BDSC products by creating a “safe trial space” and a package of promotional incentives.
  • BDSC credit providers are not always able to fully address the needs of their BOP consumers; part of the reason for this is they do not always fully understand their needs.

These key findings and more can be found in the full report.

Watch this space for further discussions on what the findings of the report mean for the financial inclusion sector.