Collaborative Digital Lending: The Next Step in Financial Inclusion

A new twist on digital lending changes the game for financial institutions in emerging markets who find it difficult to expand their base due to limited ability to serve the micro-credit segment. This can turn around money-losing portfolios.

It is a fact that financial services assist in driving progress. It helps entrepreneurs and individuals earn higher earnings by enabling their business, education and health care, and, thereby making it simpler for them to handle financial needs for growth and emergencies. There are many underserved worldwide who lack the credit that can support these requisites.

However, while general consensus dictates that financial inclusion is vital to eradicating poverty and stimulating economic growth, it is a fact that more than 50% of the world’s population lacks access to simple financial services. More than a billion people around the globe don’t have the privilege of obtaining financial services required to attain even reasonable levels of financial well-being.

The Global Findex report shows that almost 1.7 billion of the world’s population, making up 38% of all adults worldwide, continues to remain unbanked. According to the same report, a further 57% of basic accounts do not even possess access to differentiated savings, investment options, low-cost payment systems, credit or insurance.

Globally almost 2 billion adults lack a banking account

Challenges in Offering Unsecured Lending Today

The advantages of financial inclusion can be broad-ranging. For instance, research has shown that mobile financial services can ameliorate people’s income-generating potential and consequently mitigate poverty.

Banking the unbanked segment is the most complex problem in financial services, and few claim to have solved this. As is the case for every other business opportunity, the reward is attractive and alluring, but so are the risks and threats associated with it.

Inadequate Data Points. The complete financial system is built on the idea that the individuals who participate in it have a trackable and searchable financial background that contains information about their income, possessions, and overall wealth. The logistics of the existing system are not sufficiently flexible to on-board individuals who don’t have sufficient credit history. Without good credit bureau scores, it is tough for a financial institution to sanction a loan on the basis of stringent guidelines and eligibility criteria.

The Unit Economics Don’t Work. Market studies indicate that the transaction cost of a person seeking financial services from a bank in a city with a teller is about $6. This number is further increased if the transaction occurs in remote areas of the country where the number of walk-in(s) at a bank are comparatively fewer.

In addition, physical investigative reporting on the customer’s part to determine their loan worthiness requires field visits, which adds to this cost along with the requisite paperwork and approval processes. So, even something like a small ticket personal loan to the economics unit of this business will not work unless the workflow is digitally managed.

The Yabx Collaborative Lending Model

The Yabx collaborative lending model brings together different financial partners like banks, telecommunications operators, and payment service providers to pursue the common objectives of reaching out to users who continue to be under-served in terms of credit access.

In order to make this financial inclusion possible, Yabx leverages its deep domain capabilities in machine learning and big data to generate data on revenue, savings, spending habits, and creditworthiness.

Generally, users have a digital footprint that can be evaluated using artificial intelligence and machine learning algorithms and pieced together to create a credit report for every individual in real-time, drastically reducing the loan application process. Consumers are then assigned to a partner lender who is available to serve the section. All of this takes place in real time, with little or no latency. This results in a simple and quick loan procedure from the application to the approval stage.

For example, in Malawi, millions of people do not have access to a formal financial system. With Yabx, FDH Bank was able to offer tailored financial products to its customers, while opening new addressable business opportunities at reduced risk to the bank. FDH also used a digitally native loan management system and integration with the telephone company to provide access to loans for many of its customers in a cost-effective manner.

Since its launch in July 2019, the Kutchova loans product has serviced hundreds of thousands of loans to customers in which 70% of them accessed credit for the first time. (FDH Bank was among the finalists of the 2020 Gartner Eye on Innovation Award EMEA which recognizes financial services organizations for innovative use of digital technology.)

In order to serve customers in a more user-friendly and robust manner, Loan Lifecycle Management software is incorporated into these networks, and on-boarding of customer services and KYC controls can either be initiated or re-used through the customer networks.

The key offerings to its partners under the Yabx Collaborative Lending model can be summarized as:

Credit Scoring – With Yabx’s advanced AI and ML models, building a credit score is based on a unique set of traits that bypasses archaic processes and makes way for new ones. This ensures that every aspect of an individual’s life can be leveraged to provide financial inclusion. Additionally, the Yabx collaborative lending solution has more than 12,000 features conjured from alternate data to ensure that the lending process is robust and efficient.

Loan Lifecycle Management – Yabx uses class-leading tools and emerging technologies to manage the loan cycle of its lending activities. The collaborative lending solution manages the entire loan cycle right from the customer on-boarding, KYC processes, loan disbursal, and collections to ensure a contactless interaction to improve operational efficiency and swiftness in loan disbursal.

And to the relief of institutions offerings the loans, a Loan Management Lifecycle module is integrated in Yabx’s collaborative lending solution that offers a robust and user friendly interface for the end user while capturing the most critical data facts to ensure assurance on repayment. Also, Yabx’s partnership with trustworthy credit providers ensures the highest levels of success and process efficiency.

Portfolio Management & Decisioning Engine – Additionally, the portfolio management module embedded in the solution determines the nature of approving a loan to an applicant; hence balancing out the desire to bring about financial inclusion while carefully and meticulously managing the risk aspect of each loan. Yabx’s decision engine is configured with parameters set to specific limits, conditions and other factors based on the derived credit profile of the customer. A lender can set and monitor key parameters to also ensure their business goals.

How Customers & Merchant Networks Win

Given that such a huge part of the population still lacks access to financial services, digital lending is the most suitable means of resolving this crisis.

The customer and merchant networks get an opportunity to monetize the assets of data, customers and distribution. To this end, they end up making incremental fees for every customer, which adds to their bottom-line.

This in turn also helps banks focusing operations to seek new, innovative, and sustainable approaches to expand their user base to ensure a new wave of growth that could be immensely profitable and viable in the long run.

The changes that are made possible today through fintech innovations are revolutionary. Yabx, through its lending model, is making it possible for millions of unbanked, financially excluded individuals and families to gain access to a bank account and funding through this collaboration.

This model changes the game for the banks in emerging markets who are finding it difficult to expand its base due to limited ability to service the micro-credit segment. Yabx is working with some of the largest banks and financial institutions to enable their next phase of growth through acquiring a portfolio which is presently losing money for the bank and turning it around to create a financially healthy and profitable portfolio.


Rajat Dayal, CEO of Yabx, founded the company in 2017. Yabx makes it simpler and convenient for the financially excluded to avail themselves of banking products. He has 20 years of work experience primarily in mobile and banking. He was heading the Asia Pacific business for Comviva across 17 countries — primarily Malaysia, Indonesia, Thailand, Fiji and Singapore. He has been deeply involved in creating and deploying mobile financial products across these markets.

Before Comviva, he worked as a consultant with Opera Solutions (now known as ElectifAI), a data-driven product and services organization. He worked on massive amounts of data to solve business problems across industries — financial services, chemicals and industrial, FMCG, telecommunications and software. His career has been geographically diverse, spanning USA, the UK and Asia. Rajat has an MBA from INSEAD France and a B.Tech in Computer Science.

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