Channel IT is a developer and aggregator of Mobile Value Added Services that provides Airtime Distribution, Financial, Advertising, Marketing, Information, and Education Solutions through mobile network operators. Channel IT is committed to providing alternative credit solutions for the unbanked in emerging markets globally, and Africa in particular.
Through this commitment, Channel IT will provide sustainable micro-loans to 200 million people in Africa by 2018 through direct financing and peer-to-peer funding. The platform will create a marketplace that connects supply with demand and will offer three main functions: 1) accurate risk assessment for investors, 2) fair interest rates for borrowers that are related to a credit rating and available through the supply-demand market efficiency, and 3) loan fulfillment, support, reporting, and collections. In addition, Channel IT will expand its microlending from offering airtime micro-credits of between $0.25 and $4 to offering larger loans of $20-$500 (equivalent to 1 to 8 weeks of average wages).
In 2014, Channel IT distributed $450 million in airtime micro-credits (between $0.25 and $4) to a base of 100 million customers while achieving a very low bad-debt rate of only one percent. It has already exceeded these targets in 2015, and 60% of it borrows are return customers. Channel ITs innovative risk management platform utilizes telecom data to assess the credit worthiness of customers, and has found a strong correlation between the two if the correct algorithms and market insights are used. Relying on this evidence, Channel IT is extending this unconventional credit rating platform to offer larger loans ($20-$500) that will be distributed via mobile money accounts, bank accounts (for the few people who have them), MNO retail locations, and ATM locations using a unique code. These larger loans will be available to individuals, SMEs, and NGOs.
This increase in the scale of lending will be made available through extremely simplified communication and application platforms (SMS, USSD, or Apps) that make decisions possible within seconds. Furthermore, the credit rating module will be combined with a peer-to-peer funding platform (crowd funding) to achieve scale and democratization of loans to a larger number of customers. The peer-to-peer platform will engage investors in making loans available to borrows, and will calculate the interest rates against the borrowers credit rating.
The expansion strategy focuses on three pillars: Technology, Marketing & Education, and Partnerships.
Through the Technology pillar, Channel IT will invest heavily in expanding and honing its current platform using best of breed technologies and the latest innovations in the field of artificial intelligence and machine learning. The platform will include an unconventional on-the-cloud credit rating system that may be accessed and used by third parties (via web and standard APIs) such as financial institutions, utility companies, and retailers. The credit rating system will enable raising debt and equity at affordable rates.
Through the Marketing & Education pillar, Channel IT will market products and services in emerging markets through the mobile channel, particularly through SMS and IVR (voice-enabled communication). Utilizing proven techniques to enable efficient customer education and maximize adoption rates, Channel IT aims at achieving a service uptake of an average of 40% of creditworthy customers. Customer communications include educating borrowers on loan terms, how to build credit worthiness, and what to do if they fall into arrears.
Through the Partnerships pillar, Channel IT will capitalize on its excellent relationships with the major MNOs operating in Africa to jointly develop the credit rating system based on their extensive telecom data and rapidly scale up the service and the penetration rate. Channel ITs current MNO partners have access to 40% of the population of the continent of Africa.
Channel IT brings technological innovation, localized knowledge of Africa and the Middle East, and its financial strength. It has developed a proven platform that carries out over four million micro-loan transactions daily and will leverage its marketing skills to promote the new services and help educate potential users. It will commit more than $10 million from its own balance sheet to provide affordable loans and kick-start the system until the peer-to-peer funding service becomes more popular and the entire ecosystem becomes self-financed.
The following implementation steps are repeated for each target market:
The target markets are listed in section D and the target subscribers for each quarter during the term of the commitment is:
Q1 2016: Proof of Concept
The p2p funding platform will be operated in a pre-production environment and undergo a user acceptance test (UAT). The platform will be available online, as an app, and through SMS and voice platforms (USSD).
Deliverables: Performance report, UAT report, working hardware and software.
Q2 2016: First Platform Deployment
The service will be launched in one of the African markets (most probably in East Africa) with above- and below-the-line marketing. Channel IT will commit funds from its own balance sheet to kick start the system
Deliverables: operating platform, customer care support, transaction reports, financial reports, performance analysis and statistics, best practices.
Q3 2016: Performance Monitoring of First Launch
The service will be assessed after at least three months of operations in terms of non-performing loans/ delinquencies, repayment cycles, transaction volumes, return on investment for customers, and other metrics. Also deployment preparations will be done to enter new markets (hardware and software installations, local company incorporation, hiring local support teams, and other activities)
Deliverables: performance report, service performance recommendations and best practices.
From Q4 2016 to Q4 2018: Three Deployments per Quarter
The service will be deployed in three markets simultaneously every quarter.
Deliverables: operating platform, customer care support, transaction reports, financial reports, performance analysis and statistics.
Based on the Global Findex data set, approximately 2.5 billion adults lack a formal bank account, most of whom are concentrated in developing economies. For example, in Africa and the Middle East, only 18% to 24% of the population is banked. There is a natural demand for credit services in those markets, but banks use standard prudential lending rules to assess the credit worthiness of their clients and can only serve a small slice of the market (essentially a portion of the wealthy, banked people). By using credit rating tools that are based on socio-financial parameters, such as regular income, credit card transactions, mortgages, postcode, and electoral registration, banks are excluding most of the population from credit services. Additionally the lengthy bureaucratic procedures of these institutions make them less able to respond to the demands of markets where loans are mainly used for family emergencies, school fees, home repairs, weddings, or funeral expenses. Thus there is a disconnect in emerging markets between the banking rules and procedures for granting loans, and the customers needs and expectations.
According to a survey conducted by Channel IT, the unbanked in sub-Saharan Africa have two main sources of finance: raise cash from friends and family or through traditional self-help cooperatives. The former method is the most popular but as more and more people are moving from rural areas to urban cities, the family ties are growing weaker and a more formalized loan system has become necessary. The second method consists of self-help groups and work syndicates whose members make regular contributions to a revolving fund. The main disadvantage of this method is that only a few members can take a loan at any given time so it is not convenient in periods of high consumption such as public and religious holidays.
A novel loan enabler to unlock the money exchange between the supply and demand sides is required. According to GSMA intelligence, over 80% of people in Africa own a mobile phone and spend on average between $3 and $10 on telecom services. Channel IT has used the telecom data of approximately 100 million subscribers in Africa and showed that there is a strong correlation between this data and the credit worthiness of customers.