0:02

There is a segment, a huge segment,

0:04

in fact, 1.5 billion

0:06

individuals and businesses who have

0:08

no real access to

0:10

credit or any other financial product as

0:13

they don't have credit histories. And

0:16

so to create credit

0:18

history, you need to get a credit

0:20

product. So you see, it's a chicken and

0:22

egg problem, right? So that's the problem we

0:24

are trying to solve for, is to

0:27

use alternate data and

0:29

create some sort of credit histories

0:31

for this segment. In today's

0:33

episode, we're focusing on financial inclusion

0:35

and the challenges faced by over

0:37

a billion unbanked individuals worldwide. Without

0:40

credit histories, many people can't access essential

0:42

financial products or loans, trapping them into

0:44

a cycle of inequity. Rajat

0:47

Deywal is addressing this critical issue through

0:49

his work at YABEX. YABEX

0:51

leverages alternative data, including mobile

0:53

wallet activity, to create credit

0:55

history for individuals and businesses

0:57

in emerging markets. By analyzing

0:59

patterns in mobile bankings, YABEX

1:01

helps those previously overlooked by traditional

1:04

banks to gain access to the financial

1:06

services they need. We'll delve

1:08

into how YABEX operates, its impact on

1:10

local economies, and the potential for a

1:13

more inclusive financial future. So let's get

1:15

started. Hi,

1:21

Rajat. Very, very happy to have you

1:23

here. First question I

1:25

want to ask is how you came

1:28

to focus on digital lending and

1:30

financial inclusion. What makes you passionate

1:32

about this topic? In

1:35

terms of my professional life, there

1:37

have been broadly three chapters that

1:39

have sort of shaped me and us as

1:42

an organization. So the

1:44

first chapter was as a techie.

1:47

I used to write code for

1:49

software switches. This is early

1:51

2000s. In

1:54

2006, I had

1:56

a complete repivot of my career.

2:00

I started as a management consulting in New

2:02

York and I was jet

2:04

setting across various US

2:06

Fortune 500 companies. Most

2:09

of these were banks and financial services companies.

2:12

In 2011, 12, I came back to India and

2:16

I joined a platform company. This

2:19

was a company which had a

2:21

marquee product, which was a mobile money

2:23

wallet, which we

2:25

licensed to banks and telecom operators,

2:29

mostly in emerging markets. And

2:32

this mobile wallet was

2:34

being extensively used because

2:36

there was lack of card penetration

2:39

and any other sort of payment instrument. And

2:42

so in 2020 was when

2:45

we started Yavix and our

2:47

aim was to leverage

2:49

these payment trails to

2:52

offer various financial products on

2:54

top of the wallets. I

2:56

fundamentally believe this is one

2:59

of the most important and one of

3:01

the most difficult problems that

3:03

we are solving. What's

3:09

particularly impactful is the paper trail

3:11

these transactions create. These can

3:14

help individuals build a credit history, even if

3:16

they had none before. A credit

3:18

history and score is needed to access

3:20

traditional banking services and loans. That's

3:23

where Rajat and Jabex come in. So

3:27

how would you explain the concept

3:29

of credit scoring, especially

3:31

in emerging markets like Africa?

3:34

How would you explain this to your grandma? We

3:37

are helping banks offer

3:40

credit products and other

3:43

financial products to

3:45

individuals and businesses who

3:47

generally would be refused by

3:50

the banks. Our focus

3:52

markets are most emerging markets, which

3:55

is Africa, Asia, South

3:57

America, Middle East and Africa.

4:00

Africa definitely is a large chunk

4:02

of our business. And the

4:04

reason is because the problem we are

4:06

trying to solve for is most amplified

4:08

in Africa. I'm not really sure

4:10

if my grandma will get it, but I think

4:13

it is what my son gets,

4:15

and that's what I explained to him. Could

4:20

you explain also to our

4:22

listeners what are the biggest challenges

4:24

about financial inclusion and why

4:26

non-traditional credit scoring is needed? So

4:30

we are in a world where there's

4:32

a segment of population like

4:34

you and me to whom banks are sort

4:36

of running after, they are offering products, whether

4:39

it's credit cards or personal loans

4:42

or insurance products. And

4:44

then there is a segment, a huge

4:46

segment, in fact, 1.5

4:48

billion individuals and businesses

4:51

who have no real access

4:53

to credit or any other financial product.

4:56

So let me tell you the reality, right?

4:58

So my wife and I are working six

5:00

days a week, and we have

5:02

a nanny who takes care of our kids. So

5:05

we trust her with our most important assets, which

5:08

is our children. And if

5:10

at the same time, this nanny

5:12

of ours, whom we trust immensely

5:14

goes to any bank or

5:16

any financial institution, she

5:18

will not be trusted with any sort

5:21

of loan, right? Similarly, there

5:23

are these number of shop owners

5:26

and whatever you want to call them. You

5:29

call them Dukans in India. You call

5:31

them Dukas in Africa and Tien Das

5:33

in South America, who

5:35

have an ongoing need for credit, whether

5:38

it's for working capital or growing their business.

5:41

They find it very difficult to get credit

5:43

from regular banks. Generally, their

5:45

policies do not permit them to

5:48

offer loans to these individuals

5:50

or businesses as they

5:52

don't have credit histories. And

5:55

so to create

5:57

credit history, you need to get

5:59

a credit product. So, you see,

6:01

it's a chicken and egg problem, right? Unless you get

6:03

a product, you're not able to

6:05

create a history and

6:08

the policies don't allow them to offer

6:10

loans to people without credit histories. So

6:13

that's the problem we are trying to solve for, is

6:16

to use alternate data and

6:18

create some sort of credit histories for

6:20

this segment. Credit

6:25

scoring really comes down to trust. Banks

6:28

need to ensure that their customers can reliably

6:30

pay back any money that they lend. Traditional

6:33

credit scores are billed on records of previous

6:35

payments. So for those who are under

6:37

bank, there might be no data available. So

6:40

by leveraging mobile payment activity or utility

6:42

payments, we can start to get a

6:44

picture of a person's financial behavior. And

6:47

it's all about assessing risk for the banks.

6:49

The shift opened doors for the underserved

6:52

populations and fostered a more inclusive financial

6:54

system. Could

6:59

you explain a bit more how that works?

7:01

So what kind of data are you using

7:03

and how are you making that? How

7:06

are you transforming that into an ultimate

7:08

credit score to base a decision on?

7:11

Yes, and so a large segment

7:13

of the population in Africa use mobile

7:15

wallets and mobile payments very actively.

7:18

And so through our partnerships with

7:20

these wallet providers, we

7:22

monitor wallet activity. In some cases,

7:24

it's to the tune of about $5,000 every

7:26

month. So

7:29

we can see money coming into the

7:32

accounts of the business owners. So we

7:34

use this data amongst other

7:36

data sets to create models.

7:39

We assign scores to every

7:41

such individual or business. And

7:45

as a result, we offer some sort of limit to

7:47

the end consumer, right? Besides

7:50

the wallet data, we work

7:52

on other extremely rich data

7:54

sets. Depends on

7:56

country. We look at payment gateway data.

7:59

We have access. to telecom data. In

8:02

some countries, we've used utility

8:04

bill payment data like the

8:06

electricity and the water

8:08

and the gas bills. We are

8:10

more and more seeing open banking data

8:13

being leveraged. Besides that,

8:15

we use credit bureau data

8:17

if the coverage is

8:19

decent. And in some cases, we've also

8:21

used mobile app data. So

8:24

these are some of the datasets we've used for

8:26

scoring and underwriting our customers. So

8:29

can you explain a bit more how, for

8:32

example, a customer journey would

8:35

look like with Yabex? At what

8:37

point are customers, for example, interacting

8:40

with you? Are they even? What

8:42

parties are involved in this journey? So

8:45

imagine you are going to a sort

8:47

of a nearby mall or

8:49

a market and you want to do a

8:52

transaction. Let's say you need $50

8:54

to buy some good

8:56

or service. You realize

8:59

that you have only $10 in your wallet. And

9:03

so at that juncture, we offer the

9:05

consumer an option to pay through credit.

9:08

It's completely seamless. It's like you're

9:11

swiping your card and

9:13

the money is dispersed

9:15

into the account of the merchant, not

9:17

into the consumer's account. And we

9:19

open an outstanding loan on

9:22

the account of the customer. And

9:25

the loan itself is not offered by

9:27

you, but then through a partnered bank.

9:30

Did I understand correctly? That's right. So

9:32

how do you get the local banks

9:34

to trust you, having, let's

9:36

say, a more unconventional approach to

9:39

credit scoring? That's very,

9:41

very relevant. I think many traditional lenders

9:44

don't fully trust non-traditional scoring

9:46

methods. Right. They fear that

9:49

some of the prediction accuracy might go wrong

9:51

and we end up giving loans

9:53

to the wrong set of people. Right.

9:55

So trust is something that's grown over

9:57

time. When we started, we offered.

10:00

something called backtest to these banks, saying

10:05

we'll test our models on older repayment data, people

10:08

who have paid you in the past and

10:11

people who haven't paid you in the past and

10:14

tell you the efficacy of our models. So

10:17

once the results were fine, they started trusting us.

10:21

You're also working a lot with

10:23

the concept of purpose-driven loans. Could

10:25

you explain a bit more what this means

10:29

Yeah, so essentially our hypothesis

10:33

is that if you're offering

10:35

credit to any

10:37

business or individual to be deployed

10:39

for a certain purpose, the

10:42

probability of him paying back increases,

10:44

right? In one of the markets

10:46

in West Africa, Cote d'Ivoire, we

10:49

are working in partnership with a

10:52

telecom operator and a banking partner

10:54

there to offer a product which

10:57

helps consumers buy handsets

10:59

on credit. We're also

11:01

now piloting another product

11:04

in Uganda which helps parents

11:06

and consumers pay school fees through

11:09

credit, right? Again, it's completely embedded

11:11

into the journey of the transaction.

11:14

Again, a purpose which is very relevant

11:17

and we are trying to solve for. I

11:20

really like that concept, especially since it, I

11:23

think it would also be very relevant for traditional

11:25

banks because you do not just know there is

11:27

a money need, but you

11:29

actually know what the underlying customer

11:31

need is. It is really valuable

11:34

data and ultimately you're solving an

11:36

actual problem. Yeah, so

11:38

essentially we fundamentally believe that credit should

11:41

be provided for a purpose. We've

11:44

seen cases in the past where

11:46

people have taken loans and said that they

11:48

want to use the loan for a certain

11:50

purpose and end up using

11:52

the loan for nefarious purposes and

11:55

the money doesn't come back, right? And so we are

11:57

very conscious of the fact that we

11:59

are dealing with it. with an extremely

12:01

risky population and we want to

12:03

ensure that the usage of the money is sort

12:05

of restricted to the purpose that

12:07

the customer has taken it for. Purpose-driven

12:13

loans are designed to ensure that money

12:15

is used for specific beneficial purposes. This

12:17

targeted approach increases the likelihood of repayment

12:20

because borrowers are more likely to succeed

12:22

when they have a clear goal. By

12:24

understanding the underlying needs of borrowers, Jabex

12:26

can tailor its offering to ensure that

12:29

both lenders and borrowers benefit. So

12:35

taking a step back, can you

12:37

share how Jabex with your

12:39

products and your services, how

12:42

you've impacted local economies, for

12:44

example in the African markets

12:46

you're active in or also

12:48

elsewhere? I can tell you that

12:51

essentially there's a huge impact

12:53

in terms of the intent we have to

12:55

do. The first of which

12:57

is around financial inclusion. You're

12:59

allowing people and businesses with no

13:02

formal credit histories to

13:04

grow their business and participate more

13:06

actively in the economies. So

13:09

these shopkeepers or micro

13:12

SMEs as we call them are

13:14

really the backbone of local economies

13:16

in the developing markets and

13:19

through our alternate lending programs

13:21

we help these businesses access

13:24

much-needed capital which

13:26

further leads to job creation and

13:28

local economic growth. The

13:31

other thing is that 60 to 70 percent of

13:34

the borrower base that we see is in

13:36

rural areas and banks find

13:39

it difficult to cater to them because

13:41

their unit economics does not enable them

13:43

to service these areas. You can't open

13:45

up bank branches in smaller

13:47

cities and towns and so

13:50

through reaching them through our channel

13:53

is the only way you can provide the

13:56

service to the end customer. Raden

14:01

highlights a critical challenge in rural

14:03

economies, the difficulty

14:05

of establishing traditional banking infrastructure.

14:08

Many rural economies lack physical bank

14:11

branches. This makes it

14:13

hard for residents to access essential financial

14:15

services. The gap leaves small

14:17

business owners and entrepreneurs without the credit

14:19

they need to build their business. By

14:22

leveraging digital platforms like YABEX, these

14:24

underserved populations can gain access to

14:26

the capital necessary to invest in,

14:31

which can foster local economic development in

14:33

these regions. All

14:38

of this is enabled by data

14:40

and digitalization, basically. That's

14:43

correct, right? So as more people

14:45

take loans through digital platforms like

14:47

ours, they feel the

14:49

need to increase and pay more

14:51

money through wallets or mobile money

14:53

platforms, which further improves their scores

14:56

and their creditworthiness. And

14:59

then this helps further improve

15:01

the financial infrastructure and

15:03

leads to broader economic

15:06

digitization. So basically what

15:08

you previously mentioned, the chicken and egg

15:10

problem. Well, now you have

15:12

an egg and you can get

15:14

the chicken breaking that vicious cycle. Yes,

15:16

that's right. So I

15:19

also want to touch upon

15:21

the topic of financial literacy.

15:23

How does financial literacy

15:25

play a role also in the

15:27

success of your programs and your

15:30

business model? We fundamentally

15:32

believe there's a

15:34

high correlation between financial literacy

15:36

and loan repayments. And

15:39

the reason is that the financially

15:41

literate individuals are better equipped to

15:43

understand the various credit

15:45

products, their terms, the

15:47

interest rates, the fees, et

15:50

cetera, et cetera. So

15:52

I remember one of the first markets that we

15:54

launched was Malawi. So we

15:56

had a number of borrowers there who

15:58

confused. the loan

16:00

for a grant, right? And so apparently

16:02

at that time, Bill and

16:05

Melinda Gates Foundation was sort of offering

16:07

grants which would sort of get directly

16:10

dispersed into the wallets and

16:12

essentially the consumer sort of confused that

16:14

grant with the loan product and then

16:16

they did not feel the need to

16:18

repay back, right? So we

16:21

fundamentally believe that the knowledge

16:23

of how credit works really

16:25

encourages individuals to

16:27

manage their own finances better, pay

16:30

us back on time, avoid

16:32

excessive debt, and

16:34

then it sort of improves their chances

16:36

of getting further capital at a more

16:39

cheaper rates, right? So we

16:41

often create what we call as credit

16:43

ladders, right? So this is basically offering

16:46

a consumer a certain limit

16:49

and then as the customer gradually pays

16:51

back, you offer them a higher limit

16:53

to sort of reward their good behavior.

16:56

Nice incentive scheme, yeah. It's

16:58

gamification, right? So you want to incentivize him

17:00

to pay back on time and then he

17:02

gets access to what he really needs most.

17:06

So when we sort of create a customer

17:08

360 view, we

17:10

create various kinds of scores. So

17:13

one is what we call the probability to

17:15

default score or the credit score. We have

17:17

a fraud score. We have something

17:19

called a collection score. And then

17:21

we also maintain something called a financial

17:23

literacy score, right? And so

17:25

what we really know is we have

17:27

to constantly communicate with the people who

17:29

have lower financial literacy scores. That's

17:32

what we really try and do

17:34

to improve the literacy levels. And

17:37

how do you do that? Let's say there is a

17:39

customer who you know, they

17:41

have little financial literacy. So how do

17:44

you communicate with them? So

17:47

all our mediums to communicate with the

17:49

customer is digital, right? And so it

17:51

is basically sending out the right

17:53

message at the right time. So let's

17:56

say one day before the due

17:58

date, you got to educate him. If you don't

18:00

pay your loan by

18:02

tomorrow, you will incur a penalty. So

18:05

these are all little... We

18:07

really have to spell it out for the

18:10

end consumer that if A doesn't happen, then

18:12

it could reflect in something else that might

18:14

be not conducive to you. So

18:17

also, say, refraining from the,

18:19

let's say, typical formal banking

18:21

standard letters that you would

18:23

get, but really make it

18:25

tangible for your customers. I

18:28

mean, I think fundamentally when you're doing a collection, it

18:31

needs to be a sort of a blend of carrot

18:33

and stick, right? You really need to educate him. You

18:35

need to tell him that you pay

18:37

on time, you get higher limits, you get

18:39

cheaper access to credit, but if you don't

18:41

pay back in time, then there

18:44

could be repercussions. Financial

18:49

literacy plays a crucial role in

18:51

promoting financial inclusion across Africa. A

18:54

significant amount of the unbanked population lack

18:56

financial knowledge. This is

18:58

a primary barrier to accessing formal financial

19:01

services. Without understanding how accounts

19:03

work or the implication of loans,

19:05

people miss out on the opportunity

19:07

to save, borrow and manage their

19:09

finances. Many people are unaware

19:11

of the risks associated with financial products.

19:14

This can lead to issues like significant

19:16

debt and fraud. By

19:18

investing in targeted financial education initiatives,

19:20

we can empower individuals to make

19:23

informed decisions. This can

19:25

lead to a more inclusive financial system. What

19:32

advice would you give to others

19:34

working in financial services or fintech

19:37

who are interested in making financial

19:39

services more inclusive? How can they

19:41

approach that? My

19:43

advice to new entrepreneurs or

19:45

people who are entering the space would

19:48

be that they need to contextualize their

19:50

offerings to the needs of the

19:53

end consumer or merchant. They

19:56

need to be close to the need that

19:59

person or individual really has and try

20:01

and fulfill that. There's

20:03

no one set rules

20:06

which have sort of existed in the past in

20:08

terms of how banking works. We

20:11

believe banking is a play in

20:13

which you need to

20:15

be extremely customer centric and you

20:17

really need to understand the problem of

20:19

the consumer or business and try and

20:21

solve it. That's the advice

20:23

I would sort of want to give anybody

20:26

who wants to enter the space of

20:28

financial inclusion. Well, I

20:30

couldn't have chosen better closing words.

20:32

Thank you very much for the

20:34

advice and thank you so much

20:36

for the insights you previously gave

20:39

on financial inclusion and non-traditional

20:42

credit scoring. Thank

20:44

you, Nora. It's been a pleasure. So

20:54

many insights from this conversation with Rajat on

20:56

how to make financial services more inclusive. I

20:58

learned so much from what he shared and I feel excited

21:00

to break it down with you. I

21:03

know we both have experienced and worked

21:05

in seeing the change in mobile wallets

21:07

across the banking industry and it's your

21:09

work at BCGP, at the new. What

21:12

are some of the opportunities that you're seeing

21:14

for places like the emerging markets you're in?

21:17

You're talking to us from Doha. You

21:19

spend time in Riyadh. So other

21:22

than Africa, tell us what adoption and

21:24

what does the ecosystem look like? Honestly,

21:27

especially on the private side, for

21:29

me personally in Saudi Arabia, mobile

21:32

wallets are a big thing. Here everyone

21:34

is using STC pay. It's like the standard

21:37

means of payment for everything because you can

21:39

just transfer money via the mobile number of

21:41

someone else if they also have STC pay,

21:43

which makes it super convenient. Whether

21:45

I go to my hairstylist, whether I want to

21:47

pay the driver, I can use it for everything.

21:49

I think this huge adoption really makes it easy

21:52

and super convenient. I imagine that

21:54

this is also the same in Africa, coming

21:57

back to the example from Brazil, where

21:59

it's really It's going to be super easy and convenient,

22:05

and also the borders are allowed to really start

22:07

using it. Using

22:30

alternative data for credit scoring. What

22:35

did you think and how was your work seeing the opportunities

22:40

of using alternative data scoring or just

22:42

alternative data in general for inclusion? Anstly,

22:45

my first thought was coming from

22:47

the IT architecture perspective. Oh

22:50

gosh, the poor IT architects who need to set up the new data

22:52

model. I'm

22:55

deep on tech, so go nerd it out. I

23:00

imagine it's a key challenge for banks when

23:02

they're not used to it. I

23:05

can fully imagine myself doing conversations with

23:07

more traditional banks on

23:10

what it means for their own IT to set up

23:12

those more alternative data models. But

23:15

apart from this, it's amazing. I

23:20

mean for the billions of unbanked

23:22

people worldwide. Focus

23:25

should definitely be on the upside, especially

23:27

since we're talking here about Fintech.

23:30

I think Jabax is clearly not a

23:33

traditional bank with having a data storage

23:35

that's 20 years old who then need

23:37

to adjust their old Oracle database. I

23:40

think here, talking about

23:42

some modern architecture, this

23:45

is also super feasible from an IT architecture perspective. The

23:49

current products and services that you have, it's

23:54

actually coming up with a whole new suite of

23:56

products and services beyond

24:00

just the ease of, sure, when

24:02

everybody gets to the ease of SDC

24:05

and can send a payment through a mobile

24:07

number or through a biometric, what's

24:09

next? What makes you different than the guy

24:11

next door or the credit card with a

24:13

different color? Are you purple or

24:16

are you orange? Is that what will attract the trust?

24:18

So I think that that alternative way of

24:21

looking at data as an asset can go

24:23

well beyond scoring. This

24:28

has been FinTech Files, a podcast from

24:31

BCG Platinium. This season, we'll

24:33

dive deep into groundbreaking ideas shaping the

24:35

future of FinTech. And we want

24:37

to hear from you, our listeners. What

24:39

topics would you like us to cover and who are your

24:41

dream guests? Drop us

24:43

a line anytime at fintech-podcast

24:45

at bcgplatinium.com. We'd love to

24:48

hear from you.