By: Alexandra Wall
Sitoyo Lopokoiyit’s energetic voice breaks through the conference line’s elevator music. It’s 6:00pm in Tanzania and Sitoyo kindly reminds me that he needs to run by 7:00pm sharp to attend an Iftar staff event (an evening meal ending the daily Ramadan fast at sunset). With Sitoyo’s enthusiasm and the ubiquitous background noise of an international call, I have a feeling our conversation about digital credit will be anything but dull.
The Digital Credit Observatory (DCO), launched by the Center for Effective Global Action (CEGA) last year, generates rigorous evidence on the impacts of digital credit products and the effectiveness of related consumer protection measures in emerging markets. The DCO aims to bring academic researchers and private industry players, such as Sitoyo, together to collaborate on rigorous research.
Sitoyo, the Director of M-Commerce at Vodacom Tanzania, is responsible for managing and growing M-PESA in Tanzania – which is no small task considering M-PESA has been hailed as an unprecedented mobile money success story in neighboring Kenya. But for Sitoyo, a man who has always been passionate about finding creative ways to accomplish new things, this is an exciting challenge. “I enrolled in a Masters in Information Technology Management which opened my eyes to the concept of leveraging technology for businesses. In 2006, while I was working for Chevron, I was approached about a collaboration project with M-PESA. I worked on this until the role of the Head of Department of Financial Services at M-PESA became available and I applied. The funny thing is that I had never used M-PESA personally before I started working for Safaricom.”
Sitoyo’s chameleon-like ability to work for a Kenyan supermarket chain, a multi-national energy corporation, and now a mobile network operator allows him to adapt to different business models and strategies, while constantly innovating to enhance the consumer experience. This was the motivation behind M-PAWA, a now three-year-old mobile savings and loan product in Tanzania. “The credit component of M-PAWA wasn’t the original vision; it was actually designed with the intention to drive consumers’ savings rates, and not credit uptake. We need to prioritize assisting customers with getting their money to a safe place where they can save and earn interest and then, when there’s a need, be able to provide credit. One of the main objectives of our grassroots education campaign is to grow customers’ savings behavior and to educate them on the linkages between savings and credit."
Which brings us to the next challenge: the task of rolling out a new product and educating a rural, and often financially inexperienced, population on its use. Even for M-PESA, which now has 18 million active users in Kenya, it took a lot of initial time and company effort to explain the concept of “sending money over a phone.” Customer education can often be one of the main obstacles for product growth and adoption. “When you’re explaining to a first time user how a personal financial account works, it’s all about teaching money management. There’s a list of concepts that you can’t effectively teach over a TV or radio ad. You need in-person discussions and trainings which are very expensive to deliver nationwide.” It’s a well-coordinated tango of TV, radio, and in-person campaigns mixed with the natural osmosis of product use and knowledge moving from urban to rural areas.
But the alternative of poor customer education can prove disastrous. “We’ve had cases of customers discovering that they’ve taken out a loan and were never aware of, or customers who take out a loan just because they’re curious or have heard about their friends taking out loans.”
Nonetheless, M-PAWA seems to be hitting its stride. With nearly 6 million customers, there’s been a growing demand for the product which boasts roughly 200,000 loans disbursed per month. “We’re seeing a lot of individuals who use the credit component of the product to generate personal businesses. But we’re also seeing some customers who only want to save and have no interest in the credit offerings. To this end, we’re trying to better understand our customers in order to provide more customized products. We’ve been in Tanzania for three years and we’re in the midst of building up data sources to better predict customers’ behaviors.”
“Big data”, “algorithms”, “machine learning”, and “alternative data” are the buzz words around credit scoring these days. So how exactly does M-PAWA determine if a customer is “creditworthy”? “The customer must be an M-PESA client for at least six months in order to give us enough time to generate a network history and to assign a credit score. We also evaluate the customer’s account usage and activity, airtime, payment patterns, etc. We use over 80 parameters on the Vodacom network to determine creditworthiness and we review customers’ credit scores every month.” (See M-PAWA’s FAQ section for a full list of loan eligibility requirements).
Given the hype, can digital credit and mobile money, as it’s currently used in emerging markets, ever become as common as global payment systems such as credit cards and PayPal? “I think products like M-PAWA will become very widespread primarily because the traditional banking sector excludes a large population of people from gaining access to small amounts of credit. I assure you there is no formal bank in Kenya or Tanzania that has done something close to the magnitude for the types of people we’re reaching. For me, I’m focused on targeting those 2.2 billion people who don’t have access to formal financial services - and not the middle and upper income population who are using traditional credit cards and e-payment services like PayPal.”
Sitoyo’s focus on the financially excluded is what draws him to collaborate with researchers and academic research organizations such as CEGA, whose work aims to improve the impact and effectiveness of programs and policies for the poor. In 2013, Sitoyo participated in a mobile money conference hosted at UC Berkeley (at the time he was with Safaricom’s M-Pesa division).
Since then, he has been eager to understand more about the knowledge gaps that exist in mobile technology and the importance of focusing on the financial health of the consumer. “When I first visited UC Berkeley a few years ago, it was great to meet and engage with smart researchers who enjoyed bouncing ideas off each other in such an open forum. Private telecommunications companies, like Safaricom and Vodacom, don't have all of the answers to our own questions and we want to work with open-minded people who can conduct rigorous research in areas of business, opportunity, and financial inclusion. Having academic researchers in the conversation, who aren’t focused on company profit, helps us to focus on the consumers. It’s great to meet researchers who are doing really impressive work with data and who are interested in collaborating with us.”
At the DCO’s recent matchmaking workshop in May, Sitoyo presented Vodacom’s latest product and possible research questions. Lipa Kwa M-Pesa is a new service which allows merchants, retailers, and distributors to settle payments by using M-Pesa and also allows businesses themselves to receive a credit score. “At the moment we have a lot of customers who are taking out loans to run their businesses. But this is difficult to pinpoint because the customers are borrowing from us as individuals – so we have data and records for the individual but not on the business for which they’re using the loan.” Sitoyo emphasized that Vodacom is interested in having DCO researchers help the company design, build, and test the credit proposition of this innovative product developed for small and medium enterprises. We look forward to seeing what types of collaborations ensue.