Digital lenders deploy AI in race for customers
Banks and microfinance institutions already utilising AI to bolster operations.
What you need to know:
- Banks and microfinance institutions already utilising AI to bolster operations.
- Lenders are also building the capacity of staff in Artificial Intelligence proficiency.
Digital lenders are deploying Artificial Intelligence (AI) systems to predict the behaviours of their customers and streamline service delivery in a race to attract customers.
The use of generative AI in various fields has been catching on at a breakneck speed since OpenAI launched its revolutionary chat bot ChatGPT in November 2022.
In its 2023 Bank Supervision Annual Report, the Central Bank of Kenya (CBK) revealed that commercial banks and microfinance institutions are already utilising the technology to bolster their operations.
Digital lenders, which are now also regulated by CBK, are also racing to buy AI systems to catch up and steal a march on their banking counterparts.
“We are talking to several service providers to procure AI,” said Mr Peter Macharia, the Chief Executive of digital lender Jijenge Credit.
Mr Macharia is also the chairman of the Digital Credit Providers Association (DCPA), a lobby group for digital lenders that are regulated by the CBK.
Jijenge Credit CEO Peter Macharia. He is also the chairman of Digital Credit Providers Association (DCPA)
He said that AI will revolutionise how digital lenders assess customers who are not within the mainstream financial system leaving lenders with few records to score them.
“AI is a positive development because there are people who don’t use mainstream banking and mobile money and don’t have financial records. That is where AI comes in because it looks at your trends such as how you spend your money and manage your finances,” said Mr Macharia.
A survey by the CBK revealed that commercial banks and microfinance banks are likely to ramp up their innovation efforts in AI, Machine Learning (ML), Big Data and Data Analytics over the next four years.
According to the survey, institutions envision great potential in AI and ML for business and are actively pursuing the integration of these technologies into their operational and strategic frameworks.
“AI is viewed as a fundamental element of business operations that is essential for securing a competitive edge,” said the CBK.
It added that the lenders are further building the capacity of staff in AI proficiency to accommodate the dynamic nature of technological developments.
Risk-based lending
Mr Macharia added that accurate scoring of borrowers with the help of AI will also help reduce the likelihood of defaults, which will improve borrowing costs.
This comes at a time when lenders are rolling out risk-based lending, where riskier borrowers are charged higher interest rates which more creditworthy borrowers enjoy cheaper rates.
“In the risk-based lending model, customers that have a higher likelihood of paying back their loans are given lower interest rates,” he said.
In the battle for customer, digital lenders are also extending loan tenures and easing rates amid stiff competition for customers in the digital lending space.
Digital lenders are currently being regulated by the CBK following the passage of the Central Bank of Kenya (Amendment) Act, 2021.
The Act became effective on December 23, 2021 after being signed into law by former President Uhuru Kenyatta.
