First Access commits to develop agriculture-specific credit scoring algorithms that will help drive down the cost of borrower assessment while helping its client financial institutions achieve growth in credit quality. In order to deliver customized credit risk scoring algorithms to financial institutions in its target markets, First Access will build a custom credit scoring platform leveraging available mobile phone and weather data, as well as agricultural input and market pricing data from its partner, Esoko. In doing so, First Access will expand financial access to 100,000 smallholder farmers across sub-Saharan Africa and catalyze the disbursement of $50 million in loans by its client institutions by the end of 2018.
The platform will drive the following outcomes:
1. Reduced service turnaround time - The end-to-end electronic workflow service model will significantly reduce loan turnaround time from anywhere from 4 to 7 days to 1-2 days and create faster and improved loan decisions by First Access client institutions, thus better serving borrowers.
2. Increased accessibility First Access's target end beneficiaries are smallholder farmers whose average loan size for First Access's target institutions hovers around $750 for 12-24 month loans. First Access's target client institutions, including FINCA, will leverage not only mobile channels for digital payment delivery but also digital field automation, allowing loan officers to reach more borrowers faster. No longer will borrowers have to travel long distances to secure access to formal, safe financial services as all information will be collected, scored, and disbursed remotely and digitally.
3. Improved customer service and consumer protection - Through automated data validation, data protection, and an electronic approval process, client institutions will enable faster and more consistent customer service while increasing consumer protection against fraud.
January April 2017: Data acquisition: The first three months of the project will be focused on acquisition of satellite, weather, and crop data through First Accesss work with Esoko, a partner in this project.
April June 2017: Algorithm development First Access typically takes two weeks to create a customized credit algorithm for its clients, but considering the various sources of data with which First Access will be working, the organization is budgeting an additional six weeks of rigorous hypothesis testing against various financial performance and agricultural output indicators.
June August 2017: Typically, integration with First Accesss application performance interface (API) only takes two-three weeks depending on the institution, but as First Access will be setting up an integration across multiple data sources to issue an instant credit score, the organization will add an additional buffer for set-up.
August 2017: Last-phase User Acceptance Testing First Access is going to allow for three weeks of user acceptance testing (UAT) to make sure First Access is properly stressing the algorithm and its associated technical connections.
August September 2017: Client-facing demonstrations Though First Access operates its testing in a demonstration environment that reflects client interaction, the organization takes at least a week for the client to user-test demonstrations on various web platforms and through its core-banking platform.
Following the aggregation of data, rigorous testing, and implementation with FINCA in Tanzania, First Access's first client partner, First Access will scale its agricultural credit scoring product to additional existing clients, namely those who have or are planning to roll out digital field automation projects to bring financial services to rural agricultural sectors. After tapping into First Access's existing client network, it will bring its product offering to rural microfinance institutions, commercial banks looking to lend down-market, and agricultural input financing and micro-insurance companies.
Over 60% of the near billion individuals in Sub-Saharan Africa work within or depend on the agricultural sector to sustain their livelihoods. In Tanzania, one of First Accesss target markets, agriculture is the key economic driver for 80% of the countrys 49 million inhabitants. The World Banks Tanzanian Agriculture Sector Development Project has poured over $100 million during the last decade into Tanzanias agriculture sector, supporting infrastructure, technology, and market access to boost efficiency gains for its farming population.
Financial institutions (FIs), however, often deem these rural borrowers who depend all too frequently on unstable income streams to be too remote and too costly. FIs struggle to find a business proposition that allows them the capacity to issue capital to rural borrowers in a manner that is as affordable as it is automated. As a result, FIs are unable to offer rural borrowers the financial services they need.
FIs traditionally assess the credit worthiness in a manner that is both costly and subjective. Typically, a loan officer will visit the business of each one of her potential customers to take stock of business inventory and spend hours attempting to recreate financial statements with little in the way of purchase or sales receipts. Then she will visit the home to take stock of various assets and price them based on static estimations of the value of those goods.
The cost alone in underwriting a loan of this type is the single largest driver for the 40-75% annual interest rates we see in East Africa. The cost of this type of manual assessment only increases the further afield borrowers are from bank branches. Furthermore, even though FIs do, in fact, collect important information, they often lack the understanding and rigorous analytical testing to understand which pieces of the information they collect are critical for making the most informed loan decision.
As part of First Accesss next funding round, it will also be using financial support to build additional API integrations from the additional data source it hopes to secure for weather, satellite, and agronomic data from Esoko. Esoko, as an implementing partner of First Access, will provide support with collection and management of agricultural-specific market and crop pricing data that First Access will include in its models.
First Access can connect its application program interfaces (APIs) and smart algorithms to a wide variety of data, capturing characteristics and behavioral patterns that predict risk level in agricultural areas. First Access plans to partner with both financial institutions which have or are planning to deliver financial services to rural areas, as well as agricultural input and market pricing data aggregators, whose agricultural-specific data will help deliver the most relevant credit-scoring platform for its clients. These data points will include, but not be limited to, weather and precipitation, crop type and yield, and geographic satellite data.