Loan requests and inquiries have surged in Myanmar as households and businesses struggle to cope with COVID-19 restrictions. This has yielded business opportunities for non-bank financial institutions like Mother Finance, which is using technology to meet rising borrower demand and lower the risk of defaults as the pandemic wears on.

Since the start of the month, Mother Finance has been offering credit scoring services to those keen to review their financial standing for a fee of K1,500. The service, which is called MotherCredit, is the first ever smartphone-based credit scoring service in Myanmar, said Theta Aye, CEOof Mother Finance.

Credit scores are vital to a borrower’s financial well-being and important for them to start building up a credit record, as this will help them gain access to funding in the future.

Mother Finance’s machine learning-based credit scoring system analyses privacy consented and permitted alternative smartphone data combined with proprietary loan performance data such as repayment history, credit utilisation rates, loan types, and customer lifetimes. It then issues a borrower credit score which lenders can use to make credit decisions.

MotherCredit scores are generated within 60 seconds. The scores are calibrated from 300 to 850 and any score above 500 can signal fair credit. “We have a policy to not re-lend to borrowers who repay late and since we have completely automated the credit scoring system, we only underwrite to those with credit scores above 500,”Theta Aye said.

Scores above 600 can suggest good credit and allows clients to borrow more for a longer time period at a lower interest rate, depending on the type of loan they qualify for.

“Our algorithms are based on data from the smartphone and back tested by real performance from our loan portfolio. With the score, you may be able to get better offers on financial products and other credit services which can unlock more savings and benefits,”said Theta Aye.

Borrowers can maintain or improve their credit scores by making sure they are repaying their debts on time, as not settling bills punctually or missing payments would negatively impact the credit score. Late repayments will result in an immediate reduction of credit scores and may disqualify the individual from borrowing from Mother Finance in the future.

The credit scoring system has helped Mother Finance continue lending at a time when the risks to the business are climbing.

On October 13, the Microfinance Business Supervisory Committee repeated instructions for microfinance institutions not to force borrowers who are unable repay their debts to do so amid the current period of declining business and income. It was the third time the committee has issued the statement since COVID-19 first struck Myanmar in March. Daw Phyu Yamin Myat, secretary of the Myanmar Microfinance Association, estimated that the microfinance business is now just 10 percent of levels seen in May and June.

Since Mother Finance is not licensed as a microfinance institution (MFI), it does not fall under the supervision of the Financial Regulatory Department which regulates MFIs . Mother Finance also experienced a five-fold spike in its non-performing loan (NPL) portfolio during the first wave of the pandemic, Theta Aye said. However, by using data from those NPLs, the firm was able to fine tune the analytics and prediction methodologies of its algorithms for credit assessment.

MotherCredit uses smartphone metadata to build a comprehensive user behavioural analysis in real time. Unlike traditional credit scoring models that rely heavily on bank and credit card transactions data, MotherCredit’s scoring system leverages on data such as device IDs, SMSes, contacts, locations, browser history, calendars, emails, storage, downloads, mobile data usage, and even the type of applications installed on the phone. This enables its algorithms to detect predictive patterns, which are then converted into actionable credit scores.

MotherCredit uses non-intrusive and anonymous metadata to score customers and maintains full compliance with local data privacy laws, including the General Data Protection Regulation. “Our goal is to protect customer privacy while empowering them financially,”said Theta Aye.

With the richer data set derived from the first wave of NPLs, Mother Finance’s machine learning-based algorithms were able to generate more accurate predictions on credit assessments, and the firm was able to keep NPLs back to pre-COVID-19 levels in recent months.

“We have now fully automated our loan approval steps, which are processed based on our credit assessment algorithms,” Theta Aye said. Based on back testing results on past and current loan disbursements, just 2pc of clients have poor credit scores of below 500 while the remaining 98pc have scores of above 500.

“Over time, as we make further refinements to our scoring algorithms, we hope to remove additional requirements such as guarantors, household registries, township residency letters and other documentation requirements, which will allow us to do faster loan disbursements within minutes from the current 24-48 hours processing time”she added.

Mother Finance was first established back in June 2018 with the aim of making credit more accessible for the larger population. It is licensed under the Central Bank of Myanmar as one of the 27 non-bank financial institutions in the country.

Mother Finance offers four unsecured digital loan products: emergency loans, SME loans, employee loans and step-up loans, ranging from K25,000 to K1,000 lakhs.  Borrowers apply for the loans on their mobile app and the funds are deposited into their choice of bank or mobile wallet accounts.

The firm today has more than 100,000 registered users, processed over 70,000 loan applications and disbursed over K6 billion.

Ref: Myanmar Times