Financial institutions have traditionally relied on conventional credit histories and collateral to assess customers’ risk profiles, often excluding those without formal profiles in the process. However, alternative data sharing allows for a more nuanced understanding. 

By analysing data from mobile money transactions, utility payments and even airtime purchases, institutions can now assess risk and creditworthiness, empowering previously excluded individuals to access financial products and services.

Access to credit is crucial – our Consumer Pulse Study from Q2 2024, conducted in Botswana, Kenya, Namibia, Rwanda and Zambia showed the vast majority of consumers responding that access to credit and lending products is essential for achieving financial goals. However, not even 40% of respondents believed they have sufficient access to credit, except in Botswana (45%). 

Botswana has made significant strides in improving consumers’ access to finance and credit in Q2 2024, marking a notable 10 percentage-point increase from the previous year. And it’s telling that a growing number of respondents from Botswana (55%, up from 46% last year) believed incorporating alternative information not usually included in standard credit reports – such as rental payments and gym memberships – would improve their credit scores. 

The figures were borne out in the other regions too: 60% in Kenya, 49% in Rwanda, and 50% in Zambia, for instance. This indicates a shift in consumer perception toward a more robust approach to credit scoring.

What does this look like in practice? Picture a small business owner in the rural area in any one of these countries who faithfully pays their electricity bill through mobile money. Data sharing can reveal this positive financial behaviour, allowing them to qualify for a loan to expand their business. This financial inclusion, in turn, fuels economic growth and poverty reduction.

And that kind of example is just for starters: data sharing can unlock a world of possibilities beyond access to basic financial services. Imagine micro-insurance products tailored to specific needs, targeted financial literacy initiatives, or even personalised investment opportunities – all driven by insights gleaned from alternative data.

Of course, there are always concerns around data privacy and security, and these must be in place for data sharing to succeed. This means countries need robust regulatory frameworks that ensure user consent and privacy protection. In addition, trust must be built through transparent communication and education, as this will empower users to understand how data benefits them.

Just as financial inclusion requires a collaborative effort, collaboration is also at the foundation of efficient, effective data sharing. Private companies, governments and development agencies must work together to create a secure data-sharing ecosystem. This might involve creating standardised data formats and APIs to facilitate seamless – and secure – information exchange that protects clients’ privacy while opening up new financial avenues for them.

Beyond collaboration, to fully leverage financial inclusion for poverty reduction and economic growth in developing countries, we will need a multifaceted approach – which includes government policies, private sector initiatives and community engagement.

Community engagement, in particular, is crucial – because trust and digital illiteracy are significant hurdles in promoting data sharing for financial inclusion in Africa. For many, the financial system feels complex and unapproachable, and a lack of transparency around data collection and usage can make people feel like they’re relinquishing control over their personal information.

In addition, those unfamiliar with digital technologies might not grasp the concept of data sharing or its potential benefits. They might struggle to understand the technical jargon used to explain the process.

Financial institutions and governments, therefore, need to be clear and upfront about data collection practices. Publishing clear data privacy policies and allowing users control over their information can help to build trust.

Financial literacy initiatives that explain data sharing in simple terms and highlight its benefits are also crucial, and public awareness campaigns can dispel myths and build trust in the system. 

Finally, trusted public figures like community leaders can play a vital role in explaining the benefits of data sharing and addressing concerns.

Data sharing is not a silver bullet, and of course there are challenges like overcoming digital literacy gaps and ensuring responsible data governance. However, by embracing this powerful tool, financial institutions – and the clients they serve – can unlock a future where financial inclusion empowers all Africans to participate in the continent’s economic rise.

Distributed by African Media Agency (AMA) on behalf of TransUnion.