A new method for assessing credit-worthiness

“Would you rather have $1,000 now or $2,000 in 6 months?”  These are the kinds of questions Sama Sama asks when deciding who should receive a payment plan for a new toilet. It’s based on a new type of financial survey we are implementing in the field to overcome financial barriers in rural communities.

Making sanitation more affordable

In Ghana, iDE interviewed microfinance institutions to discover the obstacles faced by our potential Sama Sama latrine customers. Ninety-percent of the institutions did not offer loans for toilets at all, citing high default rates and management costs. And when these institutions do make loans available, they inevitably charge extremely high interest rates, driven, in part, by lengthy loan approval processes and collection costs.

Normally, these factors would discourage or exclude customers from buying the Sama Sama latrine. But what if we could drive down transaction costs by finding a simpler, cheaper, and reliable way to assess creditworthiness among our customers to determine whom we should offer an installment payment plan?

That’s why Sama Sama has partnered with Entrepreneurial Finance Lab (EFL) to explore a new, mobile-based credit-risk model. EFL employs a psychometrics-based predictive model based on research that has shown it is possible to assess credit-worthiness based on a series of questions, such as: 

• “Would you take $1000 now or $2000 in 6 months?” (understanding time value of money)
• “You came across an unexpected amount of money, how would you spend it?” (fiscal responsibility)
• “How many people in your community steal from others?” (internalized norms). 

Click to enlarge screenshots of the user interface:

A Ghana-specific survey to increase toilet sales

iDE’s Sama Sama social enterprise is implementing a Ghana-specific psychometric model in the form of a 30-minute survey administered on an Android device directly with rural customers. By doing so, we expect to increase the pool of eligible installment payment applicants. It will also greatly decrease turnaround time for installations (current approvals take an average of 28 days).

For approved customers, Sama Sama will collect installment payments directly from a customer’s mobile wallet or through a mobile money agent. Payments are recorded electronically to enable quick identification of delinquent accounts as well as monitoring the effectiveness the psychometric survey.

By decreasing the cost of providing installment options and using mobile collection, Sama Sama is able to lower expenses and make more affordable toilets available to Ghanians who need them. And if this innovative predictive model works, iDE will help convince lenders that they stand to benefit from a faster, easier way to mitigate credit risk and boost the number of people with access to sanitation and other utilities. This will make the unproven market a bit more proven, spur further finance innovation in the development sector, and get more important products and services to the underserved.