Weekly Roundup: Nano Lending Under the Microsope and A Bond to Fight Diabetes
Is Nano lending poised for macro impact?
Everyone’s heard of microloans. But telecom/finance firm Tigo wants Tanzanians to think bigger by thinking smaller – as in “nano loans.”
This week Tigo announced it will launch collateral-free nano loans to customers through its Tigo Pesa mobile financial platform. The unsecured loans will average $10,000 Tanzanian shillings (US $5), Tigo said. Customers will only have access to one loan at a time, which will be awarded based on past “mobile behavior.” (Presumably that means loan awardees who weren’t delinquent on their phone bills). The loans could be used for paying bills, transferring money to others or taking out cash.
“Protection against life shocks is included as everyone will be automatically insured for the loan amount against death or permanent disability,” said Ruan Sawnepoel, Tigo head of Mobile Financial Services. “Most importantly, as the product is fee based no interest can be accumulated in the event of default and acquiring a loan will not affect mobile or Tigo Pesa accounts in any way.”
A secondary benefit to the loans, Tigo says, is to help customers steadily build up a credit history, moving up the credit ladder toward higher value loans. Tigo reports that it has over 10 million registered subscribers and more than 4 million active Tigo Pesa users. Tanzania itself is becoming a hotbed for mobile finance in East Africa, with some estimates that 50 percent of the country’s GDP being transacted over mobile platforms.
It’s still relatively early days for nano lending and few case studies exist. However, another company to watch is Tiaxa, based in Chile. The firm is providing very small loans, often under a dollar, in the form of cash advances, bill payments and remittances, among other services, through what it calls its Airtime Nano-Credit business.
According to the U.S. Overseas Private Investment Corp., which last year lent Tiaxa $5 million to expand into new markets:
“The 15-year-old company utilizes several algorithms that enable it to make credit decisions in real time and quickly adjust its lending practices based on changing conditions. Today, Tiaxa has more than 130 million end-users in 20 countries in its scoring database and it provides 7 million Nano-Credits a day. It charges a small fee for each credit extended.”
Algorithms are funny like that. They have a way of quickly turning micro- and even nano-trends in finance, into macro-economic shifts.
A ‘Bond’ to fight diabetes
Imagine someone lined up a group of unhealthy people and asked if you wanted to wager that those people would suddenly start eating right and exercising more. Would you bet on their success?
A group of private investors is essentially doing just that through a $5.5 million social impact bond being issued by Social Finance Israel and partner UBS. The goal is to decrease the incidence of diabetes in Israel and hopefully, one day, beyond.
According to Reuters, it works like this: About 2,000 Israelis at risk of Type 2 diabetes will be identified by blood tests. Those people will be put on a program – funded by the bond – designed to make them healthier and keep them from getting diabetes. If it’s successful, Israel’s health care and disability costs will be reduced and the investors will be repaid from those savings.
Put in those terms, it doesn’t seem like a bad bet. In fact, this pilot project – with its focus on prevention instead of treatment – might just be a significant innovation in global health, especially in emerging economies.
Diabetes, which has become a global epidemic, represents fertile ground for a pilot project. The disease currently affects 7-10 percent of the global population – 80 percent of them from low- and middle-income countries – and diabetes-related illnesses account for more than 12 percent of global health care expenditures. Total deaths from diabetes are projected to rise by more than 50 percent in the next 10 years.
Yaron Neudorfer, CEO of Social Finance Israel, which defines its activities as a hybrid of philanthropy and investment, described the project:
“This innovative public-private partnership, driving government resources toward effective social services via an outcomes-based contract, could and should be tailored to the needs of governments everywhere. One of the greatest achievements in the design of the social impact bond is bringing health and welfare public bodies together to tackle the entire lifecycle of the disease and its complications. … I am confident that we can achieve great results and hope that others will follow our lead.”
Indeed, social impact bonds have been touted by some as the fabled “win-win-win,” saving governments money and profiting investors while meeting social needs. But there’s been criticism, too, since the first social impact bond was launched in the UK in 2010. Among the concerns are potential undue influence by investors and unfair competition for NGOs already engaged in solving the same problems.
But it’s fair to say that social impact bonds have and will continue to attract new capital to areas of need – and will continue to evolve. They’ve already spun off development impact bonds, which create “a contract between private investors and donors or governments who have agreed upon a shared development goal.”
It will be interesting to see if the pilot program in Israel, which launches in July and will play out over two years, is indeed successful in preventing the onset of diabetes. If it lives up to Neudorfer’s expectations, that will bode well for global health and the future of impact bonds themselves.
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Top image : USAID via Flickr.
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