How important is it to establish a good credit score? And what does it mean for those who may never establish one?
Those are questions Shivani Siroya, founder and CEO of Tala, a fintech company dedicated to providing financial access to everyone, has dedicated her career to answering.
In 2011, Siroya quit her full-time financial consulting job to launch her company. Together with her team, Siroya developed a mobile loan app that allows anyone with an Android smartphone to access financial products and apply for loans from anywhere in the world. Tala's mission is to meet the needs of those lacking access to credit, loans and basic financial resources.
"What we're really doing is providing access to capital to small business owners in emerging markets," Siroya says.
Getting to this point with her business didn't happen overnight. Siroya, 37, spent several years working for big investment banks before taking a promising job as an analyst for the United Nations.
Over the course of two years, from 2006 to 2008, Siroya lived and worked in west and sub-Saharan Africa, where she traveled across nine countries to observe how various societies functioned financially. Interestingly, what she found is that pretty much everyone, even business owners, made all transactions via cash. They had zero access to credit and therefore couldn't apply for loans.
This lack of any formal financial system hindered peoples' ability to progress financially, both on a personal and professional level, Siroya says.
This issue, where people are 'unbanked' or under-served financially, doesn't just occur in Africa. A lack of access to proper financial products, credit and loans happens all over the world.
In the U.S., a growing number of households operate financially within "banking desserts" or places that lack a nearby mainstream bank branch. Additionally, there are now around 70 million people in the U.S. who are under-served financially, Siroya says. Around the world, only 31% of the adult population is covered by a credit bureau, which means 2.5 billion people don't even have credit scores, she explains.
In the U.S., credit scores reflect a person's history of borrowing and paying back money, and lenders refer to them when determining an individual's creditworthiness. Without a credit history, people struggle to be approved to rent apartments or take out loans for cars or mortgages.
Outside of the U.S., credit scores, while less prevalent in certain parts of the world, still serve the same purpose. "Credit exists all around the world, and as one of humanity's oldest institutions, it is proof that someone can be trusted," Siroya says. However, a lack of resources and systematic differences make it impossible for some to establish any credit, and therefore, they have no way of proving themselves as a reliable borrower.
"Every person, regardless of where they are born, the gender they are born into, and the class they are born into, deserves access to fair, flexible services that allow them to move through the world confidently and responsibly. But that's not how the world currently works," Siroya says. "We started with a system for the excluded, in full belief that designing for those on the margins serves everyone."
It's these issues that inspired Siroya to quit her job and start a business nearly a decade ago. With a goal of providing loans to the loanless, Siroya loaned out $80,000 of her own money to entrepreneurs she met during her time working at the United Nations as a way of collecting data. That time around, just 70% paid her back. However, years later, when Siroya launched the first iteration of Tala, then known then as InVenture, her company began blind lending people once again. This time, though, pay-back rates improved.
"Our repayment rates were not surprisingly low, but as we began collecting data, we could make better decisions. Today, our global repayment rates are above 90%," Siroya says.
Tala's vision is to build an equitable financial system that works for everyone. So far, the company has lent over $1 billion dollars to more than four million customers across three continents all via its smartphone app.
One Tala customer, a woman named Aimee from the Philippines, was finally able to expand her food truck business after getting access to a loan. She opened a second business where she sells beauty products on the side. As a result of her Tala success story, she also joined on as a brand ambassador and gets paid for each referral she makes.
Stories like Aimee's aren't uncommon in the Philippines, where 85% of the formal Filipino population is outside of the formal banking system, Siroya says.
But to Siroya, Aimee represents a typical Tala customer. "She makes money, she's a consumer and she's clearly got an entrepreneurial spirit, but previously had no way of getting a formal bank to cooperate fully," she says.
The majority of Tala users are young, urban entrepreneurs between the age of 25 and 35. They are typically educated and on the cusp of the emerging middle class.
This sometimes comes as a surprise to those hearing about Tala for the first time, because people "often have a very biased assumption of who we think the under-served is," Siroya says. Tala isn't just for those living in some far off remote place. Instead, it's for everyone, whether they are starting from scratch financially or want access to better financial products, Siroya says.
Two things are consistent about the Tala user. The first is that they all have smartphones. The second is that "almost all of them are under-served by the financial sector, having little or no experience with formal credit," Siroya says.
Tala is currently based in Santa Monica, California, but its reach spans the globe with offices in Southern California, Kenya, the Philippines and Mexico. It has more than 500 employees worldwide.
The company continues to grow. As of Aug. 21, 2019, Tala announced raising $110 million during its Series D round of funding led by RPS Ventures. Siroya plans to use these funds to continue its mission while expanding its services further and developing more financial products for users.
In a news release about the funding, Tala also made mention of its more than 40,000 pickup points where customers can now receive and pay back their loans. Additionally, the company highlighted its ever expanding catalog of educational resources that help customers navigate everyday financial challenges, as well as, its dynamic pricing options that guarantee users the lowest fees based on their chosen loan amount and repayment plan.
Another goal of Tala's that is in the works is to expand its reach to the 1.3 billion people living in India, where there is a widely unmet need for credit. As for financial products, the company says it's currently piloting new ones that will offer education in addition to community and micro-insurance to the people it serves.
With a new round of funding under its belt, Tala credits users for its continued success. "Our loyal customers have helped make us one of the fastest growing fintechs globally, and the top digital lending app across our markets – and this is only the beginning," the company's news release reads.
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