Client: International Finance Corporation (IFC), in partnership with the National Credit Regulator (NCR) | 2021
South Africa has one of the most developed consumer credit information systems in the world, yet its small business offering is limited. Lenders typically fall back on the business owner’s personal credit record, which leaves many viable MSMEs “credit invisible” and contributes to a formal-sector financing gap estimated at R510 billion.
71point4 led the drafting of this diagnostic for the IFC and NCR. The study mapped the credit information sharing infrastructure and its governing legislation (the NCA, POPIA and PAIA). It then assessed more than 20 alternative data sources, including bank accounts, digital payments, supplier purchases, telematics and mobile data, on four criteria: access, coverage, quality and predictive value. Fieldwork included interviews with 58 township business owners in Khayelitsha and Orange Farm, 12 more established businesses using the Finfind platform, and credit bureaus, lenders and fintechs.
The research found that cash-flow data is the most valuable signal of creditworthiness, but that township businesses generate little of it digitally. Innovative lenders such as Yoco, A2Pay, Zande and SA Taxi are lending successfully using proprietary data. However, none of them share repayment data with credit bureaus. As a result, their borrowers do not build credit histories and may remain tied to a single lender.
The report sets out six recommendations:
- mandating business credit information sharing
- bringing bank, payment and supply-chain indicators for MSMEs into the bureau environment
- lowering the cost of digital payments for small merchants and aligning regulatory thresholds
- enabling business owners to access and share their own data
- bringing alternative consumer data, including bank accounts, rental payments and municipal payment plans, into the bureau environment
- enabling consumers to access and share their own data, including mobile usage and lay-by payments
Project resources
Download the Alternative Data Landscape in South Africa report (PDF, 2021)