Follow Us on Google
By Chinenye Anuforo
Blanket interest rates on loans may be forcing financially responsible borrowers to pay for the risks associated with less reliable customers, according to Winston Osuchukwu, Founder and Chief Executive Officer of Mathesis Analytics Inc.
Osuchukwu argued that the traditional approach of placing borrowers with different financial behaviours into broad risk categories creates an inefficient lending system where customers with lower default risks may not receive pricing that reflects their actual financial strength.
He explained that two businesses could have similar revenues and operate for roughly the same length of time but present very different risks to a lender.
For instance, a business that depends heavily on supplier credit to finance its working-capital needs could face greater cash-flow pressure than another business with faster inventory turnover and more consistent cash inflows.
Yet, under a conventional credit scoring system, both businesses could qualify for the same loan and receive similar interest rates.
According to Osuchukwu, this approach means lenders are effectively pricing the average borrower instead of assessing the individual borrower.
He said the consequence is a hidden subsidy, where lower-risk borrowers may pay more than their actual risk justifies, while some viable businesses are denied credit because they do not fit conventional lending criteria.
“The issue is not that lenders cannot identify risk. It is that traditional lending architecture groups materially different borrowers into broad risk segments,” Osuchukwu said.
He argued that the increasing availability of financial and transactional data provides an opportunity to change the way lenders assess borrowers.
Other News
According to him, information from bank transactions, merchant activity, mobile money, utility payments and supplier settlements can provide lenders with a clearer picture of how individuals and businesses actually manage their finances.
Rather than relying primarily on static historical information, lenders could use behavioural data to monitor cash flows, payment patterns and transaction activity and update their assessment as a borrower’s financial position changes.
Osuchukwu said this could pave the way for a shift from fixed interest-rate bands to more dynamic pricing, where the cost of a loan is more closely linked to the borrower’s actual risk.
Under such a model, customers with stronger financial profiles could potentially receive more competitive rates, while higher-risk borrowers would be priced according to the additional risk they present.
He said the approach could benefit both lenders and borrowers by improving the economics of credit.
For financial institutions, more precise risk assessment could allow them to protect margins while offering better rates to their strongest customers.
For borrowers, responsible financial behaviour and consistent transaction records could become more valuable in determining access to credit and the cost of borrowing.
Osuchukwu also said the approach could help address financial exclusion in Nigeria by distinguishing between borrowers who are genuinely risky and those who simply lack conventional credit histories.
He noted that a small business without a significant formal borrowing record may nevertheless have consistent sales, customer payments and cash flows that demonstrate its ability to repay a loan.
According to him, incorporating such behavioural information into lending decisions could allow more viable businesses and individuals to access formal credit.
Osuchukwu maintained that the future of lending would increasingly move beyond a simple decision on whether to approve or reject a loan.
Instead, lenders would need to determine how much to lend, for how long and at what price, based on a more accurate assessment of each borrower’s financial behaviour.
He said lenders that successfully combine technology and multiple sources of financial data will be better positioned to move away from pricing the “average borrower” and towards pricing the individual borrower.
The shift, he added, could create a more efficient credit market in which borrowers are charged according to the risks they actually present rather than being grouped into broad categories.
