Zanaco Plc’s Chief Risk Officer at the 8th BII World CEOs Summit in Nairobi, Kenya presented on “Addressing Digital Credit Risks in Emerging Markets” where the following 10 commandments that constitute digital credit risk were unleashed:-
1. The pandemic has seen accelerated digital transformation;
2. These have metamorphosis of financial institutions and banks operating models;
3. One key area whose model has morphed is lending from paper applications to internet based solutions leveraging off Artificial Intelligence (AI) and Machine Learning (ML);
4. Technology is serving as both a “risk” and opportunity for players :- risk for those under investing and opportunity for those that can smell the coffee in a competitive landscape;
5. The need for system stability and operational resilience can never be overemphasized in the digital era;
6. Usage of technology in lending has its own pitfalls such as “algorithm risks” that could legally bind a bank for unsanctioned credit exposures;
7. Other key risks in the credit space would be those unique to technology such as “identity” and “fraud threats”;
8. The lending faculty stands to benefit in efficiencies from AI (predictive) rather than ML (historical) in addressing some usual hurdles that African markets face of requiring financial statements etc..
9. Legal and Regulatory risks. Regulators continue to trail behind when it comes to providing sufficient regulation for digitally driven banking solutions. This make organizations operate in a legal ‘grey area’ where litigation can surface unforeseen risks.
10. Inadequate regulatory frameworks for digital lending is another risk. MNOs/Fintechs may be regulated by “telco watchdogs” who have no capacity to regulate the lending business. The hand shake between central banks and telco watchdogs needs strengthen and must be forward looking.