Credit bureaus not enough? Try these alternatives

In the very busy heart of Jakande market, Lagos, Nigeria, there’s a man known simply as “Alhaji.” He doesn’t use a computer or have any formal credit system, yet he knows exactly who to trust with his goods. Alhaji has a remarkable memory; he remembers every face, every transaction, and every promise made. If you’re a loyal customer, he’ll extend credit without a second thought. But if you’ve ever faltered, even once, he’ll turn you down with a gentle smile and a firm “no.”

Now, imagine trying to replicate Alhaji’s intuition on a much larger scale. This is essentially what credit bureaus attempt to do — using data to predict who will pay back a loan. But here’s the thing: in Nigeria, this system is as flawed as trying to replicate Alhaji’s wisdom through a spreadsheet. The only goal of credit scoring is to predict whether someone will repay their debt. But let’s face it: lenders aren’t clairvoyants. They rely on past behavior to forecast the future, a method as crude as it sounds.

The shortcomings of credit bureaus in Nigeria

The reality in Nigeria is even bleaker. Credit bureaus are supposed to be the backbone of this predictive process, yet they often fall short. According to a 2023 report by Enhancing Financial Innovation & Access (EFInA), only 46% of adults in Nigeria have access to formal financial services. This limited coverage means that a significant portion of the population doesn’t even appear in credit bureau databases, making it incredibly difficult for lenders to make informed decisions.

Lenders are left grappling with outdated or incomplete data. A 2022 study revealed that up to 25% of the information in Nigerian credit bureaus is not updated regularly, leading to inaccuracies. For instance, a borrower might have repaid a loan six months ago, but if the bureau hasn’t refreshed its data, it may still reflect as outstanding. Imagine trying to make a decision with a jigsaw puzzle that’s missing half its pieces — frustrating, right?

So, what do you do when the very tools designed to guide your decisions can’t be trusted? You start looking for alternatives. And just like Alhaji, who relies on his system of trust and intuition, lenders in Nigeria must turn to more reliable methods to truly understand who they’re dealing with. Let’s explore three alternatives that might restore stability and sanity in your credit decisioning system. 

3 alternatives to credit bureaus in Nigeria

When credit bureaus don’t give you the full picture, it’s time to explore other options to truly understand your customers’ financial behaviors. 

Statement data: The financial story behind the numbers

Imagine being able to look directly into someone’s financial habits. How they earn, spend, and save their money. This is exactly what statement data offers. By analyzing bank statements, you can see borrowers’ cash flow, recurring expenses, and how they manage their funds over time.

Platforms like Mono and myBankStatement can extract this data seamlessly from their bank accounts, giving you a real-time view of their financial activity. For even more assurance, you can verify these statements with services like Periculum, ensuring the data is accurate and current. Platforms like Kolo by Lensqr are also innovating in this space, providing detailed insights that go beyond the basic information a credit bureau might offer. Statement data doesn’t just show you a number. It tells the story of how someone handles their money, which is vital in assessing their creditworthiness. 

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Blacklists: The power of community in fighting loan defaulters

One of lenders’ most significant challenges is dealing with serial loan defaulters who exploit the lack of updated information. These bad actors know that lenders don’t always share data, allowing them to jump from one lender to another, causing financial havoc. And unlike credit bureaus, which focus on scoring, blacklists zero in on bad actors, those who have repeatedly defaulted on loans or engaged in fraudulent activities. That’s where Karma by Lendsqr comes in. Karma isn’t a credit bureau; it’s a powerful private blacklist service that draws on the collective strength of over 4,500 lenders in Nigeria.

This community-driven service automatically flags known fraudsters and chronic defaulters from accessing new loans within the Lendsqr network. By sharing information in real time, lenders can protect each other from repeat offenders. Karma works like Google’s spam filter — once enough lenders flag a borrower, it effectively blacklists them across the entire ecosystem. This means that when you’re part of the Lendsqr ecosystem, you’re not just relying on outdated credit scores but tapping into a live, constantly updated database built by and for lenders.

Featured read: How to restructure loans and work with struggling borrowers.

Social footprints: The digital clues to borrower reliability

In today’s world, a person’s digital presence can reveal much about their lifestyle, habits, and financial stability. This is where social footprints come into play. By examining a borrower’s activity on platforms like LinkedIn, you can gauge their professional standing. Are they employed? How long have they been with their current employer? Are they active in their professional community? These are all indicators of stability and responsibility.

Additionally, their broader social media activity can offer clues about their lifestyle. Are they living within their means or beyond them? Although social footprints won’t give you the whole picture, it will however provide valuable context that can help you make a more informed decision when combined with other data. These insights are often more nuanced and up-to-date than a credit bureau report might reveal.

Featured read: How to communicate with delinquent borrowers.

There’s more than one approach to get the job done

In the end, no single tool has all the answers. Credit bureaus and these alternative methods each bring something valuable to the table. By combining the strengths of credit bureaus with the real-time insights from statement data, blacklists, and social footprints, you create a more complete picture of your borrowers. Book a free demo, and let’s show you how to integrate these tools and methods into your lending business for better results.