Digital credit is fast, private and convenient. It also is potentially risky. Since 2012, millions in East Africa have borrowed small amounts with a quick tap on their mobile phones, making the region the first to achieve high penetration rates for digital consumer credit. Many in the financial inclusion community have supported digital consumer credit for its potential to easily help poor people meet their short-term household or business needs, while others have cautioned that it could lead to risky credit booms and over-indebtedness by those least equipped to manage the risk.
CGAP’s research has found that more needs to be done to protect consumers, and that a market slowdown in East Africa is needed to avoid a consumer credit bubble and ensure the market develops in a way that supports low-income users. A review of millions of loans and two large-scale customer surveys of digital borrowers reveal troubling issues with transparency and responsible lending that contribute to high delinquency rates, harming both consumers’ credit histories and lenders' business profits. But by employing some innovative approaches, CGAP’s experiments with six digital credit providers show there are ways to improve the customer experience, and to deliver better results for the business.
Who Uses Digital Consumer Credit, and How?
Roughly half of all borrowers in Kenya and Tanzania have made late repayments on digital consumer credit. Young, urban men are the largest segment of digital borrowers. Men are more likely to borrow for household needs, women to pay school or university bills. These are among the findings from CGAP’s review of data on millions of loans and from two customer surveys it conducted with FSD Kenya that reveal troubling issues with transparency and responsible lending. Explore the results below:


Additional Resources
CGAP partnered with six digital credit providers to identify opportunities to increase transparency over terms and conditions, improve loan repayments, manage credit risk, and help product sustainably.
This 2016 series shares early insights on digital credit, a fast-moving area in financial product innovation. In this series, we highlight the new Introduction to Digital Credit materials developed by CGAP, along with experiments and findings from case studies underway.