Mobile-first lending in Tanzania, with Nassor Abubakar

Caleb Maru called M-Pesa the "company that changed Kenya forever", and the crazy thing is, its impact was even bigger than that - because the dominoes that M-Pesafirst tipped over in Kenya, seventeen years ago, are still having an impact all over East Africa. In today's episode, I'm speaking to Nassor Abubakar, an M-Pesa veteran and digital lending expert who is spreading mobile-first digital loans across Tanzania with NMB Bank.

You should follow Nassor on LinkedIn for https://www.linkedin.com/in/nassabuba/

NMB is at https://www.nmbbank.co.tz/ and on LinkedIn at https://www.linkedin.com/company/nmb-plc/ and on Twitter, Facebook, Instagram

The Finscope Report mentioned can be accessed here: https://www.afi-global.org/wp-content/uploads/2023/08/Finscope-Tanzania-2023-Report-Insights-that-Drive-Innovation.pdf

Caleb Maru's TechSafari is at https://www.techsafari.io/ or jump straight to the M-Pesa story at https://techsafari.beehiiv.com/p/company-changed-kenya-forever

I'm on LinkedIn and always open to new genuine connections - https://www.linkedin.com/in/brendanlegrange - please do reach out, and follow the show's page, too

Meanwhile, my action-adventure novels are on Amazon, some versions even for free, and my work with ConfirmU and our gamified psychometric scores is discussed at https://confirmu.com/ and on episode 24 of this show https://www.howtolendmoneytostrangers.show/episodes/episode-24

If you have any feedback or questions, or if you would like to participate in the show, please feel free to reach out to me via the contact page on this site.

Keep well, Brendan

The full written transcript, with timestamps, is below:

Nassor Abubakar 0:00

7.5 million people in Tanzania have bank accounts and we have 24.4 million mobile money wallets.

So the market has awakened and all the customers across all the operators are enjoying a little bit of financial inclusion through this digital lending initiative: an opportunity for any street vendor, bus conductor, bicycle repair, or momenpreneur to build a score with the bank and later qualify for loans of up to $250.

Brendan Le Grange 0:36

My first experience of working abroad came in 2006/ 2007 when I was implementing risk based collection strategies for Barclays' portfolio of credit cards and personal loans in primarily Botswana and Kenya.

Botswana is great, a lovely place you should visit and I always had a good time there. But Kenya was always the more dynamic market.

And I'll forever be in love with Nairobi's mad architecture. But I'll also always feel like I missed out a bit because I saw the seeds of massive change and didn't appreciate what those might grow into. These were the early days before easy roaming and so we would buy prepaid SIM cards in Kenya to us while we were there. And one thing we noticed was that a call from Nairobi to Johannesburg or Safaricomm prepaid SIM card costs 10 times less than the same call made from Johannesburg to Nairobi on a South African prepaid SIM card. That was the first time I heard a voice over internet protocols. I mean, I knew of Skype...

Okay, Storytime with Uncle Brandon quickly, I actually created my first Skype account when I was interviewing for a job in Argentina. In those days, international calls cost a fortune. So I set up Skype in an internet cafe in Sandton to ensure I could take the call.

But this was the first time I'd heard about using VoIP at scale to reduce your infrastructure costs. There wasn't M-PESA, obviously, but M-PESA launched just a year later, and I can't help but feel that a more astute me would have picked up on the general vibe of what was brewing in the market at the time with the leapfrogging of old technologies.

Now, as I talk about M-PESA, I should also mention Caleb Maru. If you like Marcel van Oost and if you're interested in the African tech scene, you should also be reading Caleb Maru's Tech Safari newsletter(www.techsafari.io). That's what I was doing the day before I recorded this interview when, coincidentally, they did a deep dive on M-PESA, the first successful mobile money use case in the world and perhaps Africa's most significant fintech.

Certainly, it's up there, with 50 million customers across eight African countries from Kenya to Egypt, to Ghana to South Africa to Tanzania, and a few in between, they could depending on how you measure it make a claim for the title of being Africa's biggest bank. Though Caleb and team make a great argument about why, on the contrary, not being a bank is M-PESA's superpower.

Welcome to How to Lend Money to Strangers with Brendan le Grange.

Nassor Abubakar 3:20

Habari vizuri sane Brendan, greetings from Dar es Salaam.

Brendan Le Grange 3:23

Nassor Abubakar, senior specialist in the innovation lab at Tanzania's NMB bank. Welcome to the show.

Nassor Abubakar 3:30

Thanks for having me, Brendan.

Brendan Le Grange 3:32

It's a pleasure. Nassor, a month ago, I released my episode with Charles Wandia, in which we spoke about how East African financial services have changed in the 15 years since I last worked there - but I see you were in high school at the time, so to protect my ego, let's just jump ahead to talk about what the Tanzanian landscape looks like today. Who is doing the lending who is doing the borrowing? How do the banks, the fintechs and the telcos stack up?

Nassor Abubakar 3:59

Thanks again, Brendan. So speaking of Tanzania, Tanzania is one of the markets which form the East African Community, whose economy is currently growing at a very stable rate and we have a stable political atmosphere. We have many economic activities like tourism, fishing agriculture.

Speaking of the financial services, and the lending space in particular, allow me to cite from the Finscope Report of 2023. These reports claimed that by 2023, last year, the adult population of Tanzania is currently sitting at 34 million. Most of people in Tanzania are speaking Swahili, which is the dominant language, close to 40% are the only people who can speak English and that would give a little bit of indication or what will be the financial literacy. 75% of the population own a smartphone or do manage a smartphone and 31% have access to the internet.

Whereby from the report we see that 7.5 million people in Tanzania do have bank accounts. And with the presence of mobile money operators, we have 24.4 million mobile money wallets currently opened by these telcos talking into the lending space.

In particular, the banks still dominate the biggest share in terms of value, but the market has seen a new narrative of digital loans, which is mostly dominated by MMOs and fintech players through their micro lending services, which still requires banks collaborations by funding for regulatory approval, as well as managing the provision side with the help of the FinTech players will bring onto the table, the scoring and big data capabilities.

Brendan Le Grange 5:48

In East Africa, it was really the telcos that launched fintech. And, well the numbers there show that, I mean, almost four times as many mobile money accounts as bank accounts.

And when I look at your career laid out on LinkedIn, you're almost a reflection of that. So let's look back at that career of yours, how did you start? And how did you progress from being a telco expert to becoming a digital lending expert?

Nassor Abubakar 6:13

So my father worked his entire career with state owned telecommunication company known as TTCL, where most of the time, me and my siblings we were lucky to witness the tech revolution from the telecom space from the cradle phones, the booth phones as well as first prepaid cards.

So we had a lot of excitement with the telecommunication technologies. But um, fast forward in 2015. Before graduating my undergraduate studies, I received an offer from Airtel to join the company as a graduate management trainee, whereby I was exposed to multiple commercial units like marketing sales, enterprise customer service for markets like Tanzania, Kenya, Malawi, and India.

And at some point, I looked at the airtime credit as a channel, which allowed people to buy these bundles in airtime by taking a loan from the service providers.

But things get more exciting where I happen to launch successful products like mobile virtual prepaid cards, mobile banking services with all of the banks in Tanzania, as well as merchant payments in 2021. That's when I became a fully fledged lending specialist looking after almost half a billion dollar portfolio of micro lending services within the M-PESA ecosystem.

This was a self taught journey. But I have to admit this was through learning from other like minded individuals who inspired me with exciting stuff going on in the Tanzanian fintech space, like Firas Ahmad of Azam Pay,

Reuben Mwatosya of Tembo and Rashid Tulisindo from M-Pesa Tanzania.

Brendan Le Grange 8:01

Yeah, and in the Western markets, when you look on LinkedIn, you might see people who put ex-Google, ex- Facebook, ex-Revolute, as their headline, but in East African FinTech, it is M-Pesa that's the name that really started at all.

And you spent two years there.

For those who are less familiar though maybe outside the region, what is M PESA? And what did it do for digital lending in Tanzania,

Nassor Abubakar 8:25

So M PESA started its journey in 2008, which then the only facilitated money deposits and withdraw through mobile money agents, but it later evolved it to allow a few times in some few bill payments like electricity and water payments. Many improvements have been done over time.

And M-PESA, is now considered as a separate financial institution, and now under regulatory supervision of the central bank, together with other banks and other microfinance institutions.

And, yes, M-PESA champions that FinTech agenda on the digital lending, it has already set the bar for the rest of telcos to follow from last mile consumers mobile money agents, cash loans like term loans, overdrafts loans, device financing fuel loans, agri loans, school fees, loans, to SMEs who accept digital payments via M PESA.

And from last year's performance report, M PESA publicly claimed TSh440 million worth of loans with the revenues before tax, being more than $30 million, which contributes close to 20% of the entire M-Pesa revenue.

Brendan Le Grange 9:37

Yeah, I mean, it is just massive since its launch, and use the mobile phone technology to jump ahead and really close the gap on a lot of financial services.

So it's a big story that anybody who's unfamiliar with it really should investigate.

Nassor Abubakar 9:52

just to add on that other telcos are also following so good thing is being done by his neighbours from Airtel as well they have their overdraft as well as saving and lending products, together with what TiVo PESA is doing. So the market is awakened when it comes to the digital lending services, and all the customers across all the operators, I joined a little bit of financial inclusion through these digital India initiative.

Brendan Le Grange 10:20

Yeah, and we're seeing its speed at which you can roll out products, we see that momentum carrying on his head lots and lots of innovation, which probably brings us to your current role, because just a couple of months ago, you joined NMB as a senior specialist in their innovation lab.

So I guess, firstly, you who is NMB and what does that innovation lab look like? What's it doing within the bank?

Nassor Abubakar 10:44

Yes, I left my role with M-PESA, a couple of months ago, where I've recently joined NMB, the leading bank in Tanzania within the innovation and development department, a team which acts as a bridge to ensure that the business requirements are supported with effective and efficient technical delivery.

Brendan Le Grange 11:03

Yeah, and so you hit the ground running there with the launch of NMBPesa at an event in Dar es Salam, which I believe hosted 10,000 spectators. So that's really exciting, as I understand it in NMBPesa blends mobile banking with roaming bank agents to create a best of both worlds sort of scenario. But tell me more about this product and what it brings to the market.

Nassor Abubakar 11:27

This is quite exciting right now, for a while back many times and young, especially those living in the lower part of the pyramid have been shying away from opening and using bank accounts because of many reasons like affordability. As well as reliability and convenience of getting those accounts for many years, they lack some value added services like micro loans, as well as some micro saving products.

So with this NMB PESA account, you're not required to visit a physical bank branch, you can open the account by reaching out to sales agent people then direct sales support with any government issued ID from me the voters ID passport, and 1,000 shillings, which is equivalent to 0.2 dollars, whereby from there, you can get your account in five minutes.

What's so special about this account is the absence of monthly maintenance fees, but also an opportunity for any street vendor, bus conduct a bicycle repair, or mompreneur to build a score with the bank and later qualify for unsecured digital loans of up to $250, which is close to 500,000 shillings in terms and the event was done couple of weeks ago in Daar ers Salaam, whereby he managed to raise the awareness on the account in the benefits he provided whereby from that we see a lot of people now visiting our physical offices or asking for the sales agents for them to open those accounts.

Brendan Le Grange 13:03

That's wonderful.

So you really are connecting those two worlds, because what can sometimes happen, if there's innovation in the access to credit space is you can bring people in, but then there's no way for them to move from the FinTech world to the traditional world, where they might be able to access bigger loans as their needs grow.

Whereas now you are providing that length that is as easy access, like you're familiar with from your phone, no need to go to a bank branch, no fees for small balance accounts. So you're not losing all your money just to bank fees. But at the same time you building that relationship with a bank, that obviously then has a huge ceiling of what's possible in the future when it comes to credit.

And yeah, I mean, you've spoken there a little bit about loans already. This is obviously a lending show. So let's deep dive that part of it a bit. How does digital lending get rolled into that NMBPESA process.

Nassor Abubakar 13:56

First of all, after opening that account for a new customer, they have to build a score by actually depositing as well as using that account to pay for various services like bill payments, or making transfers, p2p transfers or mobile banking transfers, as well as digital payments for any street vendor or maybe any restaurant.

And from that, and NMB PESA. We have our own internal scoring as well as loan management platform, whereby we categorise based on the usage of a customer. We make eligible random customers based on their eligibility to qualify for certain amount as long as which they are all unsecured. You don't need to put up collateral, but I'm in lending money to strangers.

The other FinTech players like what I've mentioned, they have a big responsibility to design the products which fits the market needs. Is it a device loan? Is it like a cash loan? Or an overdraft loan or a fuel loan? And make it in a way that the customer can get that product in a convenient way and understand how it works.

But also, we have to work hand in hand to create and maintain an infrastructures for the users to conveniently take the loans and make repayments as I've mentioned, but also, the telcos play a big part in communication and advertisement of those products to ensure that uptake and penetration of those products reach out to the intended customers.

They also support inquiry handling on how to use or how to get that product, as well as for selling to upselling of different lending services. But to ensure the sustainability of the lending business and make every partner happy. The telcos usually involve a reputable scoring partner, which have integrity and proven competency in designing algorithms, which can accommodate as many customers while filtering riskier customers, as well as employing different business models to ensure the faults are maintained within the rates which won't impact the business.

Not only that, but also telcos allows various initiatives to ensure repayment of the loans like deploying a collection this and configure auto debit on customers wallets, to avoid over indebted users. The telcos stay conservative by allowing users minimum limit and periodically graduate users to higher limits based on the usage behaviour of that particular product.

But they do also integrate with credit bureaus as well as third party providers to enhance users scores with data beyond what's available on the bank quarter pose ecosystem.

Brendan Le Grange 16:56

So I guess one of the knee jerk explanations for the historic lack of credit inclusion would have been that these loans are too risky to make that a too risky for banks to serve. But you've been making those you see the numbers. I mean, you put it in place all these checks. It's not a world where you just lending to a stranger, you are able to score these customers use data in interesting ways.

And I know it's relatively new, but what is the reality on the ground? What are the NPL numbers like?

Nassor Abubakar 17:23

Tanzania is a very risky market to lend through because financial literacy is quite low. Many of the people who have access to these loans, they consider it as a quick and easy money for them to take and run away from. They do not understand the implications of them not repaying their loans on time, or actually defaulting, which might impact their score and blacklisted themselves from any other loan from any loan provider, be it micro lending to traditional loans.

Just to look into the numbers I would say currently, in general for the digital loans, the NPL levels sits from 3% to 8%. The customers are different from one telco to another, I will say M-Pesa's NPL is as low as 3.3% to maximum of 4.5%. But I will tell you in some of the telcos, they are NPL levels close to 6% to 8%.

Brendan Le Grange 18:25

Yeah, which I mean, he is pretty low, but also shows the value in having a good system in place because there's a big difference between three and a bit and eight and a bit percent. The size reveal that that market inherently doesn't need to be risky, provided you thought through how do you contact How do you collect? How do you score a customer? How do you select the right sort of customers?

Now, Nassor, if people are listening, and we'd like to watch the story, progress or follow you to see what you're doing? What are some good places for them to go online to follow their journey to participate in the conversation.

Nassor Abubakar 19:02

So for the listeners of this podcast, like to ask them to go read the Finscope report of 2023 by visiting the website of the institution, which is www.FSDT.or.tz

They can also connect with me on LinkedIn has Nassor Abubakar, where I regularly contribute about FinTech not only in Tanzania, but to other emerging markets in Africa and Middle East.

Brendan Le Grange 19:31

Yeah, I can attest to you being very friendly on there, and also very valuable in terms of the insights you share. I'll put links to all of those as well as the other sites we've mentioned along the way, in the show notes for anybody who wants to have the easy route to them.

But finally, before I let you go, you are working in the innovation lab, as we said at NMB, when I hear those words, I'm picturing people in lab coats with crazy hair, doing all sorts of crazy experiments, but what are you cooking what is next on the horizon for us to get excited about?

Nassor Abubakar 20:02

So for NMB a lot of exciting things that are coming expect a super app from NMD, the first Super App from any bank in Tanzania, I would say a adoption in offering seamless financial services, sandbox integrations to allow startups and fintech players to test our API's as well as get them on boarded in our payment ecosystem, so that we could collectively drive financial inclusion to the underserved segments.

So follow our social media pages, as in NMB bank on Facebook, Instagram X and LinkedIn for more updates.

Brendan Le Grange 20:43

That's awesome. I think that we're talking about things like AI, super apps and access to credit in emerging markets. We talked about leapfrogging technologies, mobile monies. It's great to see these in play in different situations. So thank you for your time today. Thank you. For those I'm definitely going to be following the story and yeah, best of luck as you keep producing new lending innovations there in Tanzania.

Nassor Abubakar 21:09

Thanks, Brendan. Thanks for all the listeners. All the best.

Brendan Le Grange 21:13

And thank you all for listening.

Please do look for and follow the show on your favourite podcast platform and share the updates widely on LinkedIn where lending nerds are found in our largest concentration. Plus, send me a connection request while you're there.

This show is written and recorded by myself Brendan le Grange in Brighton, England and edited by Fina Charleson of FC Productions.

Show music is by Iam_wake, and you can find show notes and written transcripts at www.HowtoLendMoneytoStrangers.show and I'll see you again next Thursday.