Yet some experts urge caution and stronger protection for consumers.
If cash is still king and mobile money heir apparent to the transaction settlement throne, especially in Africa, then mobile credit will be the ultimate crown prince as mobile wallet companies, subscribers and third-party innovators start to embrace digital credit in earnest.
Developers and innovators focused on Africa are expanding fintech and financial inclusion options as more and more Africans remain without access to credit and other finance options.
African mobile operators such as MTN Group, Safaricom, Econet and Bharti Airtel have embraced mobile credit in key markets such as Kenya, Zimbabwe, Tanzania, Nigeria, Rwanda and others. Loan applications and their processing are all completed through mobile phones, bringing greater convenience to people across Africa.
Global telecom company Ericsson is just one company that has developed a mobile wallet platform that is being used by MTN Group in the African markets, where it has launched mobile money credit facilities. “MTN launched Mobile Money loans in Uganda, Rwanda and Ghana using Ericsson Wallet Platform,” says Brian Arendse, strategic program director for Ericsson in Johannesburg. “[It] allows users to store, transfer and withdraw money, paying merchants and utility providers as well as using financial services like savings and loan.”
Digital finance experts at advisory company Mondato say the mobile credit industry “has shown great promise, with budding hopes that digital credit may prove a powerful tool for financial inclusion” in the early years. Released early this year, the Mondato report (Digital Loans: A Wild Wild West?) finds that digital credit can be used to deepen financial inclusion by facilitating lending to “those without a traditional credit history.”
Additionally, the report notes, digital credit has the advantage that it is instant and remote, allowing an applicant to receive a loan within 24 hours—often in five minutes or less—through an automated system that determines credit-worthiness and facilitates collections without visiting a physical branch. In Zimbabwe, Econet Wireless’ mobile money platform, EcoCash, is offering the Kashagi mobile personal loan, which has a payback period of one month. In other markets such as Nigeria, farmers are able to access digital credit through mobile phones.
World Bank economists have mixed feelings. In a February 2019 World Bank report (Fintech and Household Resilience to Shocks: Evidence From Digital Loans in Kenya), Prashant Bharadwaj and William Jack, leading a group of World Bank economists, analyzed the M-Shwari mobile credit platform in Kenya and found a “high demand for digital loans.” Yet the authors conclude that more research is needed on digital credit, with a focus on stronger transparency and consumer protection.
The Consultative Group to Assist the Poor (CGAP) in Washington, D.C., a global partnership of more than 30 development organizations that aims to advance the lives of poor people through financial inclusion, has found that digital credit suffers from weak consumer protections, low transparency and high rates of late repayment, with sometimes devastating consequences.
In its report, A Digital Credit Revolution: Insights From Borrowers In Kenya And Tanzania, the organization found nearly half of mobile loan borrowers missed their loan payments, which in Tanzania leads to being blacklisted from credit. Furthermore, 20% of respondents to its survey reported cutting food spending so they could repay mobile loans. “It’s time to slow digital credit’s growth in East Africa,” the report concludes.
Despite the many possible drawbacks that are being cited by researchers and other experts, Craig Schachter, the global head of FinTech Ecosystem at Finastra, still believes Africa can “leverage the massive mobile footprint to apply for loans directly,” since the region has a “large percentage of the population that is unbanked” and still financially excluded.
He advocates for a hybrid approach to digital credit, whereby mobile firms partner with finance institutions and other companies. Partnerships with banks will also help ease the regulatory compliance burden on telcos. “By partnering with banks, mobile operators can help create a channel for lending, cross-border remittances, savings, trading and other financial services provided by banks,” says Schachter. “Bank partnership can also provide experience and guidance to support any regulatory burden that may otherwise fall on the mobile operator.”
Tala is a global mobile lending application with operations in Kenya and Tanzania, and its CEO, Shivani Siroya, tells Global Finance that her company uses “a combination of phone and behavioral data to disburse short-term credit” through a mobile app. “Mobile loans are key in helping people smooth their income and expenses to create more financial stability,” Shivani says.