Mobile Banking: The Key to Building Credit History for the Poor?

The success of mobile payment and mobile banking systems, such as M-PESA in Kenya, has exceeded expectations. With the exponential growth of mobile phone subscriptions in developing countries, and the increasing popularity of m-banking and m-payment providers, there is also an expanding volume of data accumulating in the databases of mobile network operators (MNOs). Captured in their databases are payment and transaction histories about users who many believe represent the unbanked population. This population segment typically has no formal credit history and therefore cannot access financial services at affordable interest rates. These payment and transaction records may indicate a person's creditworthiness, based on whether the transaction is a bill payment or whether any trends or patterns based on frequency, regularity and value of the transactions can be detected.

This case study explores the hypothesis that mobile transaction data may potentially help this population establish a formal credit history, help lenders more accurately evaluate credit risk, and lead to increased access to financial services for the poor. The objective of this research is to determine whether mobile transaction data provide enough of a foundation on which a credit information system for the base of the pyramid (BoP) can be built. An additional objective is to determine the level of interest in public-private partnerships (PPPs) on the part of various stakeholders.

This research uses Kenya as a case study because Kenya possesses a very successful mobile payment service offered by Safaricom called M-PESA, as well as two private credit risk management companies. Furthermore, the financial sector and banking regulator are making progress towards establishing licensed credit reference bureaus and building a credit bureau industry.