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De-risking your Lending Business During an Economic Recession
The tools and technologies banks and fintechs in Africa should adopt during uncertain economic times.
2 years ago

Economies the world over are facing recession and the increasingly restricted access to capital can already be felt by banks and fintechs alike. While so much of the current volatility feels beyond control, there are measures and new approaches to financial data-driven lending that businesses can take now to prepare for, and even grow from, during economic uncertainty.

The International Monetary Fund (IMF) recently downgraded its economic growth forecasts from April’s projections, predicting that output will fall to 3.2% in 2022, from 6.1% last year. As central banks around the world are raising interest rates thanks to inflation, growth is expected to only further stagnate. (World Economic Outlook Update July 2022, IMF)

In Nigeria, the World Bank made clear that, while growth prospects have improved in the last year, the mounting burden of inflation and fiscal constraints are placing the economy in a more fragile position. 

Specifically, the Nigerian development update, titled “The Continuing Urgency of Business Unusual,” (World Bank Group) highlights that inflation in Nigeria, already one of the highest in the world before the war in Ukraine, is likely to increase further as a result of the rise in global fuel and food prices caused by the war. 

The World Bank has bleakly assessed that such pressures may push up to one million more Nigerians into poverty by the end of 2022, in addition to the 6 million Nigerians already predicted to fall into poverty due to the drastic rise in food prices.

Despite Nigeria’s favorable position as a major oil exporter, for the first time since its return to democracy, the country is unlikely to benefit from higher global oil prices, only further underlining the need for all businesses to consider how best to prepare for an economic downturn.

A report from credit agency Fitch earlier this year stated that banks may encounter a weakening  operations environment over the next year due to the adverse global macroeconomic conditions already affecting the Nigerian economy. (Business Insider Africa) Specifically, high inflation and the slowing economy will put pressure on borrowers to the detriment of banks’ asset quality. 

Considering this economic climate, the report predicts that the Central Bank of Nigeria will need to increase interest rates to support their margins. 

In Kenya, a net economic growth is still projected for 2022, however, the World Bank has forecasted growth to be 2% less than that experienced in 2021. While the war in Ukraine is the primary culprit of the weakened economic outlook, global supply constraints as well as regional droughts are also factors with potential to loom larger as the year progresses. (Focus Economics)

Additionally, the Kenyan government reportedly recently backed out of a USD 1 billion Eurobond sale due to elevated bond yields, and is also considering rolling back fuel subsidies to limit the gaping budget deficit. (Focus Economics article) With essential subsidies on the chopping block, consumers could soon find themselves managing even more financial constraints as prices on many goods are set to rise. 

While East Africa’s strongest economy may not be as starkly impacted as others, Kenya’s fiscal position within the global economy, potential droughts and political tensions surrounding the August elections are all components of the upheaval ahead. 

With Kenya’s loan defaults at a one-year-high of 14.1% as of April 2022 and Central Bank of Kenya’s (CBK) interest rates rising to curb inflation, Business Insider Africa highlights the urgent need for lenders to step up their loan recovery efforts. (Business Insider Africa

It’s unlikely any country or economy will avoid the impact of the recession, making it imperative for all businesses to do what they can to weather the storm. For lending businesses, this means building and solidifying a healthier borrower base. Now is the time to re-examine the lifecycle of your loans to see where technology could make the difference between struggle and success.

The Lifecycle of a loan and where technology can help:
  1. Pre-Qualification
  2. Decisioning
  3. Portfolio Management
  4. Collections

Pre-Qualification: Find the right customers 

Prior to lenders having access to real-time alternative data, pre-qualifications were based on cash flow and single account information. The influx of broader, deeper, relevant data from fintechs has given lenders an opportunity to build a more precise pre-qualification process that can connect them with even more potential customers than most of the traditional processes.  

At Pngme, our data sources include both loan and bank balances and transactions across all connected accounts. These data sources provide unmatched visibility into applicants’ financial health and give lenders higher fidelity cash flow calculations.

Learn more about the data available to you after integrating with Pngme.

Decisioning: Make decisions faster

The broader, deeper data benefitting lenders’ pre-qualification processes is also the cornerstone of stronger decisioning. 

With a more robust approach to parsing out goods and bads, lenders are now able to swiftly reduce defaults early in the loan lifecycle.

At Pngme, we recently went through one of our customers’ decision flows and pinpointed where our decisioning Features could add the most value for their goals. After assessing the data together, we were able to identify a way to reduce their non-performing loans by 21%. 

Pngme’sFeature Library includes snippets of code for over 20 helpful features lenders can easily import into their code base to access data from Pngme's API in a low-code development process. 

Some of our 20+ features include:

  • Debt-to-income ratio

  • Cash flow

  • Loan repayments

  • Count of defaulted loans

Portfolio Management: Understand and set your risk threshold 

Monitoring customer transactions in real-time for signs of loan distress gives lenders a new tool to monitor their portfolio, even in uncertain times. Real-time data and alerts can easily bring to light any signs of loan distress early on, so lenders can get ahead of issues before possible default. 

At Pngme, our partners can easily set up alerts and monitor customers’ financial health in the Pngme Dashboard. Some of our alerts across all connected accounts include insufficient funds, loan approval, and overdraft. 

Monitoring customers’ financial health also gives lenders a deeper understanding of which loan products are most profitable and what potential new loan products could drive expansion while continuing to minimize risk. 

At Pngme, some of our partners are using data acquired through integrating with us to drive their buy-now-pay-later (BNPL) offering and assess what other financial services would be valuable to their customers. The data and insights served up via Pngme’s API and previously inaccessible to lenders, are now allowing our customers to build powerful credit and lending products, including BNPL, and to acquire more customers with less risk.

Watch a tutorial on how to navigate the dashboard and view alerts.

Collections: Keep the cash flowing

Today, lenders can assess in real-time whether a borrower has the ability to pay back a defaulted loan and if so, from which account. 

At Pngme, partners who share loan outcome data are able to utilize the Loan Status feature (part of our Collections Tool Set) to view a borrower's loan status and the loan due date. They can then use the Connected Accounts feature to quickly assess if the borrower has the funds to repay their loan.

A comprehensive view of a customers' financial status, as well as the ability to see account balances in real time, allows lenders to focus their collections efforts and invest their time in collecting from customers who have the resources to pay back their loans. 

Watch a tutorial on how to use Pngme’s Collections tools.

Speak to the Pngme team about making your lending business recession-ready

While a business can’t control macroeconomic trends, fintechs have tools today that can help lenders build higher performing loan books with reduced defaults, better loan products, loan distress monitoring, and tailored collections strategies. 

With these components working together, lenders can build a healthier portfolio than was ever possible in past recessions, giving their businesses a previously unlikely opportunity to create success and come through economic uncertainty stronger than before.

Sign up and test in the Pngme Dashboard

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