Lessons on Digital Consumer Credit from East Africa

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.