Shivani Siroya, 33, is the founder of Tala Mobile, a four-year-old company based in Santa Monica, CA, that makes micro-loans in Kenya, Tanzania and the Philippines. To evaluate creditworthiness, Tala offers a smartphone app that would-be borrowers download onto their cell phones. The app gives Tala access to a range of data, from basic biographical information to the number of people loan applicants contact on a daily basis. Tala can see the size of the applicant’s network and support system. The data even reveal where the applicant goes during the day, whether she demonstrates consistency, like making a daily call to her parents, and whether she pays her bills on time. The revelation: a person’s routine habits are more meaningful than traditional credit scoring. Once approved, a borrower can get money downloaded onto her smart phone in two minutes. On loans that average $50 with an interest rate of 11%, Tala has logged a repayment rate of better than 90%. To date it has loaned almost $20 million to more than 150,000 people. On revenue of $1.5 million in the last year, it had a profit of more than $500,000. In this interview, which has been edited and condensed, Siroya describes how she pioneered this new form of micro-lending.
Susan Adams: Tell me about one of your borrowers.
Shivani Siroya: One of my favorite customers is Jennifer. She’s 65 years old and she runs a food-service business in Nairobi. She had no access to traditional credit because she had no credit history. Her son told her about our product and he told her to download the app and give it a try. She answered eight to ten questions on her phone. She was shocked that we approved her for a loan. She’s taken out about 30 loans with us in the last two years. She started with an average of $50 and from there it’s steadily progressed. At first she had a little food stall. She’s opened two additional food stalls and because we reported her information to the credit bureau, she was able to get a traditional bank loan at a financial institution. She got approved for a small business loan and she’s looking at opening her own restaurant.
Adams: What did you do before you started Tala Mobile?
Siroya: I started out in equity research at an investment bank. From there I learned about microfinance and I worked with an NGO in India that did micro-finance. I started to realize that one of the major problems was how do we get someone from the microfinance system into the formal credit system? How do we get them access? The issue is that these people don’t have a credit score or a financial identity.
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Adams: Did those questions lead you start Tala Mobile?
Siroya: I wound up going back to school and studying health economics and econometrics at Columbia University. From there I went to the UN Population Fund and I worked on a project where we were trying to understand how to quantify the effect of microcredit on improving people’s quality of life. We worked across nine different countries in West Africa, sub-Saharan Africa and South Asia. What we found was that it was very hard to understand what the benefit or the outcome was, because all the capital was being spent in cash. We didn’t really understand the capacity of these individuals or what kind of credit products they needed. We didn’t have the data for the financial systems to work.
Adams: Did you see a way to solve that problem?
Siroya: I felt like, rather than doing thousands of in-person interviews, there had to be a way we could create this digital trail. I started to realize this data lived on phones. People are getting financial transaction data on their phones. We can understand their behavior.
Adams: How did that lead to starting your own business?
Siroya: Honestly I didn’t set out to start my own company. I really set out to solve a problem. I was working full-time while I was doing this. It ended up taking on a life of its own. I did crazy things like I emailed 1,500 people on LinkedIn in order to get advice and mentorship and find out whether anyone else was solving the issue.
Adams: That’s a staggering number. Whom did you email?
Siroya: Anyone and everyone. I emailed people on the funding side. I was not part of the VC world. I didn’t know much about Twitter. I just really tried any avenue I could to find people in this space. I wanted to know, how do you start to formalize the solution, how do you get a product to market?
Adams: But how did you put together a list of 1,500 people?
Siroya: I went one by one. I asked myself, who do I know from the UN who is working outside the UN, who is working at a micro-finance institution? That person would be like, you should talk to this person.
Adams: How many of those 1,500 people answered your emails?
Siroya: At least 65%.
Adams: Do you have some trick to get people to respond to you?
Siroya: No. I believe that most people are really good and willing to help, especially when they don’t feel threatened. I would just tell them my story. I’d say, I’d love your advice as someone who’s been in this space for a long time.
Adams: How did that lead to you starting a business?
Siroya: More and more people said no one was solving this problem. They said, you should do it. I started putting down my thoughts and it went from being on a piece of paper to launching it. One day my boss said, I think you’ve got another job.
Adams: How had you launched the business while you were working?
Siroya: I’d figured out this data existed and I could use it for a credit score. I used my own capital to lend to individuals in India, Ghana, Mexico and in Mali.
Adams: How many people did you lend to?
Siroya: About 50 people. It was a way for me to get started and know if there was anything there.
Adams: How much did you lend and how big were the loans?
Siroya: In total I spent about $20,000. The loans were from $500 to $5,000.
Adams: How did you evaluate the borrowers?
Siroya: It was a work in progress. I asked them questions about their business, I asked them for references, about their daily lives and I combined that with daily data points I got from their cell phones. It was definitely time-intensive but it allowed me to test the outcome.
Adams: How did you find small lenders in those far-flung places?
Siroya: From all those conversations I was having and at the UN Population Fund, I had contacts in those areas. I kept meeting more advisors and mentors. People were joining me on the project. We had a volunteer army of 30 people around the world working on this together.
Adams: How much money did you raise when you launched the business?
Siroya: We raised $300,000 from four angel investors.
Adams: How long did it take you to figure out how to use cell phone data to make loans?
Siroya: About a year and a half. First we started collecting data using text messages and voice response. We started to realize that we could grab this data seamlessly from smartphones with the customer’s permission. We did that at the end of 2013 and we launched the current product in March 2014.
Adams: How do you track a person’s daily movements?
Siroya: Through GPS data that comes through the operating system of the phone
Adams: What are you looking for?
Siroya: Consistency and the verification of identity. For example, if someone says they work at an office job and we never end up seeing them in that location, that’s kind of strange.
Adams: Has this raised privacy concerns?
Siroya: No because our customers give us the access. We explain that this is to develop their credit score.
Adams: Walk me through the process of applying for a loan.
Siroya: You download the app and answer eight questions that revolve around demographic and location data. On the back end we’re already scoring you. We send a loan offer. If you accept you get the capital directly into your mobile wallet. Eighty-five percent of customers are getting cash in their wallet in two minutes. We laugh about the fact that we can’t ask for a loan and get money in two minutes. We’re open 24 hours a day. A customer can request capital and get it in under two minutes at four in the morning.
Adams: How did you finance the loans in your first year?
Siroya: When we first started, we stopped doing our own lending. We focused on the credit scoring and data science side. We were creating credit scores and licensing them to financial institutions in Kenya as well as in India. They were doing their own lending to small businesses. They paid us for the data.
Adams: When did Tala start making its own loans?
Siroya: In 2014 I felt like we weren’t moving fast enough so I said, let’s put our own capital behind this and prove to the marketplace that we’re correct. We raised an additional $1.2 million after our seed round.
Adams: What was your default rate at first?
Siroya: When you first start, you do blind lending. You want to have defaults. If you don’t, you can’t build a credit model. We had a default rate of 50% to 60%. Once we built the model, it went down to less than 10%.
Adams: What mistakes have you made?
Siroya: I wish we’d done our own lending sooner. We should have taken the risk and believed in ourselves.
Adams: How big is your potential market?
Siroya: We’re unlocking credit in emerging markets. There are 2.5 billion people around the world who are underserved and there’s a $31 trillion unmet need for credit, according to the World Bank.
Adams: How much competition do you have?
Siroya: We were the first in the market to do this. We’ve seen a lot of competitors come in, including traditional Kenyan banks and Silicon Valley companies. There’s a product called Branch. They’re about a year behind us.
Adams: How do you feel about the point you’ve reached?
Siroya: It’s like a dream come true. But it’s challenging because we’re developing a whole new system and a new way of thinking about risk and identity. I also feel incredibly fortunate that I get to work with a team that’s diverse. Forty-eight percent of our team is women and 73% is nonwhite.
Adams: Do you think there are lessons from what you are doing that would apply to business lending in the United States?
Siroya: Definitely. We have a relationship with our customers. We don’t believe we’re trying to monetize them with our first interaction. We’re gathering data directly from our customers rather than working with third parties. In the US, financial institutions are not focused on the daily life of their customers.