Alex is the owner of a garment manufacturing shop in Douala, Cameroon with five employees. Business is good, and when the opportunity comes up to buy the additional equipment he needs off another shop that has just gone out of business, Alex heads to a well known West African microfinance institution to ask for a small business loan to help him make the purchase.
He fills in all the necessary forms on himself and his business, and then organises for a loan officer to visit his shop to make sure the reality matches the claims Alex has put on the paper. The loan officer tells him that it might take the bank two weeks to do their analysis and give him a yes or no answer. Delays like this are standard in Cameroon, but Alex walks out the door more frustrated than ever.
The problem? He’s a return customer – this will be his third loan from the same institution – with a history of excellent repayment behaviour. But the bank still treats him like a stranger.
Automation empowers lending relationships
When it comes to microfinance in Africa, people, trust, and personal relationships are still at the heart of the lending experience – or should be. When unnecessary bureaucracy and outmoded procedures stand in the way of services like loan renewal, however, they can tie up loan officers and create a poor experience for their best customers. But there may be one way to put people back at the centre of the loan renewal experience: automation.
Automated loan renewals work by automatically offering eligible customers the opportunity to take out a new loan without any of the old paperwork or manual re-appraisal. Just prior to loan maturity, the customer receives an SMS from the bank with the new offer. If the customer accepts, they can drop by the branch to sign and the loan is disbursed, reducing the wait time from a few days or weeks to just a few hours.
Creating automated loan renewals that centre both customers and bank staff takes the right combination of credit score modelling, product design and service design – with people involved at every step of the way.
AI products built with the bank’s human knowledge
The first step involves building an algorithmic credit scoring system that leverages the bank or microfinance institution’s real human expertise.
For example, after the bank’s behavioural data is subjected to statistical analysis and customers are divided into classes, loan officers review and challenge the scoring results based on their first-hand knowledge of the customers. The same is true for the rules for generating recommendations for loan renewals: bank experts – in this case operations teams – review and challenge rules to make sure recommendations match the reality of their experience. Finally, the institution’s leadership defines business rules determining which customers will be eligible for renewal, as only they can define the acceptable tradeoff between eligibles and risk.
The next step involves creating the automated loan renewal product itself, defining the communication channels, the commercial message, and the process flow that brings interested customers into the branch.
The result is a product that keeps credit risk under control, with automated loan losses on par with human-evaluated loan portfolios.
Delighted loan customers
Customers like Alex find automated loan renewals attractive as the system rewards the best customers for good loan repayment behaviour conducted over the past one, two or ten loan periods.
The best customers can get their new loan quickly, without bureaucratic delays or time wasted at the branch. Customer satisfaction improves as customers feel their bank understands them and their borrowing needs, without their having to ask. And they feel rewarded, having earned a level of service to match their solid repayment behaviour and excellent customer status.
Motivated loan officers
Automated loan renewal can reward loan officers too. At Rubyx we always recommend that the customer stays in the loan officer’s portfolio even after the automated process is adopted. Automated loan renewals help them more easily achieve their productivity targets while providing incentive for them to maintain the customer relationships.
Automated loan renewals also free up more time to focus on tasks where human value is significant — in one case we found loan officers saved up to 5 days of work per month thanks to automated loan renewals. This means they will also have more time to dedicate to new customer acquisition, which may get a boost as the bank can offer more sophisticated loan products to customers in the midst of their own digital transformation.
In the world of microfinance and credit, automation can be a powerful enabler of human relationships. With careful collaboration between the lending institution and a Laas partner like Rubyx, you can make sure automated loan renewals keep people where they belong: at the centre of the lending experience.