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Lending Startups Look at Borrowers Phone Usage to Assess Creditworthiness

Even obscure variables such as how frequently a user recharges the phones battery, how many incoming text messages they receive, how many miles they travel in a given day or how they enter contacts into their phonethe decision to add last name correlates with creditworthinesscan bear on a decision to extend credit.

In Kenya, offers an Android app that lets users apply for a loanand get immediate approval and access to funds. The loans average $30, enough for a taxi driver to pay for gas or a fruit seller to stock up on produce. Branch charges between 6% and 12% interestbased on the borrowers creditworthinessand loans are usually repaid between three weeks and six months later.

Traditional microlending tends to be far more expensiveinterest rates often exceed 25%partly because lenders must visit borrowers in the field to assess their ability to repay. Banks have steered clear due to the high cost of building physical branches.

These app-based lending startups are backed by some of Silicon Valleys biggest names.Branch, which was founded by microlending pioneer Matt Flannery ,has received funding from Joe Lonsdale, co-founder ofdataminer Palantir Technologies. InVenture, based in Los Angeles, is headed by a former United Nations officer and funded by venture investors Chris Sacca and Zachary Bogue. Saida is funded by startup incubator Y Combinator. Omidyar Networkan investment firm and foundation established by eBay Inc. founder Pierre Omidyarholds a stake in Lenddo, a lender that determines creditworthiness by analyzing social networks like Facebook.

By installing these apps on their smartphones, users grant them access to any information that may help assess the borrowers creditworthinessfrom the content of their texts and emails to the duration and volume of their calls.

InVentures algorithms, for instance, found that users who wait until after 10 p.m. to make callswhen rates are lowerare lower-risk borrowers. Somewhat counterintuitively, Branch found that users who are known gamblerssomething the app would find out by scanning messages or payments to a gambling companyare more likely to repay a loan than nongamblers.

Youre able to get in and really understand the daily life of these customers, said InVenture CEO Shivani Siroya. Her companys scoring formula, or algorithm, analyzes 10,000 so-called signals per customer.


These lending startups build on the popularity of mobile banking in many developing countries and the rapid rise of smartphone use. A Pew Research Center report from April shows that 34% of South Africans, 27% of Nigerians and 15% of Kenyans already own a smartphone.

Customers of Branch and InVenture in Nairobi, Kenya, said they used the loans to pay for running or improving small businesses. Some had access to banks but felt the smartphone interest rates were better; others had been borrowing informally from neighbors at high interest rates.

The owner of a beauty and weight management center said small loans covered items such as skin cleansers when her bank account ran low.

Samuel Njuguna, a chef, said he bought plates, cutlery, and pots. Ive had to turn down a few business opportunities because of lack of equipment, Mr. Njuguna said. Now, he says he is plowing most of the money back into his business.

These are people that dont have a credit score, said Branchs Mr. Flannery, whose earlier venture,, helped expand microlending. Your digital trail can establish your financial track record.

Lending startups like Branch could bring formal credit for the first time to between 325 million and 580 million people in emerging economies, according to a recent report by Omidyar Network.

While the smartphone lenders focus on emerging markets, their efforts to assess risk based on nontraditionaldatasources is part of a wider trend in Silicon Valley. Affirm, LendUp, ZestFinance and others usedatafrom sources such as social media, online behavior anddatabrokers to determine the creditworthiness of tens of thousands of U.S. consumers who dont have access to loans.

And competitors with deeper pockets are entering the field. Visa Inc. has built mobile payment applications in Rwanda and is working with International Business Machines Corp. to use records of retail transactions or remittances to create a surrogate credit score. Chinese e-commerce giant Alibaba Group Holding Ltd. recently launched a credit-scoring program that uses the companys own trove of transactiondatato assess risk.

Privacy advocates have complained that borrowers might be denied a loan because of a Twitter post such as my car has broken down. U.S. companies have wide discretion to offer loans as long as they dont sell credit scores or discriminate against minorities, women, or people with disabilities.

The Omidyar Network surveyed dozens of individuals in developing countries about the privacy trade-offs, and most said they had no problem sharing personal details in exchange for much-needed funds.

As a former official at the U.N. Population Fund, Ms. SiroyaInVentures CEOhas conducted more than 3,000 in-depth interviews with small businesses in developing countries. She said borrowers in these countries are far less risky than mainstream financial institutions think they are.

Soon, she said, she will have thedatato prove it.

Heidi Vogt in Nairobi contributed to this article.

Write to Elizabeth Dwoskin at

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