Overview
- Digital microcredit refers to credit products that are short-term (one week to a few months), low value, accessed via mobile devices, and typically involve automated credit scoring and/or fast approval. Digital microcredit models initially relied on feature phones, but increasingly available on smartphones via app-based lenders. The application and approval process can be instantaneous or near instantaneous, often rely on scoring based on alternative data.
- Business models nowadays may involve banks, non-bank lenders, e-money issuers partnered with other regulated financial service providers, or non-bank mobile internet applications.
- This is a rapidly evolving landscape, with increasing range of credit services being made available to consumers via non-financial institutions such as e-commerce platforms and other forms of online and digital lending.
The unique characteristics of these products give rise to new risks specifically linked to such characteristics. Note: While these models are beneficial for inclusion, consumer harm has already been apparent in several jurisdictions! See Country Examples
A 2018 CGAP study found that 56% of borrowers in Tanzania and 47% in Kenya indicated they had been late on repayments for digital microcredit.
Poor disclosure and transparency
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Poor transparency for digital microcredit has been shown to correlate with higher levels of late repayment and default. Examples of these practices include:
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Unfair lending
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The design and business model of some digital microcredit products poses increased risks of unfair lending. Some instances of unfair lending include:
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