One of the major issues for Iranians is getting credit. The monumental hurdles for acquiring personal loans are apparent, and even the recently introduced charge cards by some banks still remain a distant dream for most people.
Credit cards will apparently not be coming to Iran any time soon – as despite the high interest charged for loans, to accrue interest credit cards seems to be one step too far for regular banks.
But, several new developments from global tech markets may allow Iranian lenders at some point in the future to move out of this cul-de-sac and help the economy grow.
Many new firms in several countries are now offering to get round the issue of those without a credit score, including firms like Zest Finance, LendUp and Affirm.
One company created by Shivani Siroya in California is working with mobile phone operators in Kenya, Tanzania and the Philippines with the help of smartphone apps.
Called Tala Mobile, the company evaluates creditworthiness via an application.
The app gives Tala access to a range of the person’s data, from basic biographical information to the number of people loan applicants contact on a daily basis.
Tala can see the size of the applicant’s contacts list and friends and business network.
The more than intrusive app can even reveal where the applicant goes during the day, whether he/she demonstrates consistency, like making a daily call to parents, and whether they pay their utility bills on time.
These so-called ‘second-generation’ creditworthiness apps reveal a person’s personal traits more than anything already offered by existing credit checking companies, and can help lenders decide whether they would be able get their money back on time.
If approved, a borrower can get money downloaded onto their smartphone in just a few minutes – entirely removing the need for a bank’s traditional system of demanding a relative’s property title deed as surety.
Siroya, speaking with Forbes magazine said, “We worked across nine different countries in West Africa, sub-Saharan Africa and South Asia.”
A Paradigm Shift
“What we found was that it was very hard to understand what the benefit or the outcome was, because all the capital was being spent in cash. We didn’t really understand the capacity of these individuals or what kind of credit products they needed. We didn’t have the data for the financial systems to work.”
Moreover, a report by the Omidyar Network in the US said that with the introduction of digital credit worthiness apps, some 580 million could be lifted out of poverty and helped to build their own lives.
That report noted, “Companies in the ‘Big Data, Small Credit’ space are an example of how this paradigm shift can unlock an entire new pool of customers for formal lenders, while helping consumers in emerging markets get the services they need to improve their lives.”
Iranian Fintechs Miss the Prize
Iran has a booming financial technology industry (fintech for short), with several savings apps and escrow services springing up to help facilitate payments. There is even a new price comparison website called rade.ir which helps people choose the best savings interest rates.
Despite advances in Iran’s financial technology sector, the creditworthiness sector has yet to be developed. There is no reason given by anyone in the industry for this lack of development, however, a general lack of knowledge of the concept of credit ratings carries the blame.
There are several bank-backed venture capital funds now available in Iran for people with bright ideas, including Parsagad Bank’s FANAP, as well as accelerators funded by several private groups.
Ultimately, it is a matter of when, not if, this system will come into place in Iran, considering the poor state of the market for loans as they currently stand. Whoever gets the so-called first mover advantage, along with the permission of the Central Bank of Iran, could see an increase in the quality of lives of the citizens.
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