Digital Credit


  • 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.

Digital Credit

Poor disclosure and transparency

RisksPossible regulatory approaches

Poor transparency for digital microcredit has been shown to correlate with higher levels of late repayment and default. Examples of these practices include:

  • Information on pricing often incomplete or not transparent (range of different methods to convey pricing, finance charges and fees not disclosed separately, etc.).
    • Range of different methods may be used to convey pricing.
    • Can be portrayed as interest rate, finance charge/flat fee or combination of two.
    • Rate can be calculated on daily, weekly, or monthly basis.
    • Interest rates themselves vary widely, which raises fair lending issues.
    • Finance charge not disclosed separately from repayment of principal.
    • Fees for third-party charges not disclosed.
  • Inadequate access to complete information about terms & conditions.
    • Standard risks related to terms and conditions being long and complex or not easy to understand still apply.
    • In addition, terms and conditions may only be provided via a link to a separate location, not immediately available to potential borrower (particularly for feature phones).
    • Information conveyed in poor format (particularly challenging on small screens of feature phones).
    • No means to retain information.
  • Poor format of disclosure, particularly via mobile phones.
  • Information provided too late in process during a mobile transaction.
  • User interface or UI difficult to navigate.
  • Require prominent disclosure of both total cost metrics and breakdown of costs.
  • Encourage greater standardization in presentation of pricing and terms.
  • Adapt for digital channels, such as bite-sized chunks of information consistently presented and secondary layers and offline channels for further information. See Country Example

    Portugal: For retail banking via digital channels, providers in Portugal must assist customers to obtain further information via hotline, live chat, or other tools.

  • Require disclosure of key terms and conditions in channel being used for transaction and access to full terms and conditions, including after the transaction was completed. See Country Example

    Kenya: Consumer testing in Kenya showed that providing summary terms and conditions within mobile channel led to better consumer comprehension and comparison shopping.

  • Require order and flow of information to enhance transparency; disclose pricing and key terms and conditions earlier in transaction process.
  • Leverage behavioral insights to encourage consumers to engage with information and require user-friendly user interface.
Digital Credit

Unfair lending

RisksPossible regulatory approaches

The design and business model of some digital microcredit products poses increased risks of unfair lending. Some instances of unfair lending include:

  • High prices, with APR in some cases as high as 621%.
  • Mass marketing to consumers with little assessment of individual consumer circumstances or ability to repay.
  • Certain business models based on high loss rates.
  • Poor practices such as rolling over loans or encouraging multiple loans to repay other loans, creating endless cycle.
  • Require providers to assess the ability of prospective customers to repay loans and only grant loans where affordable to consumer. See Country Example

    South Africa: Financial service providers are prohibited from entering into a credit agreement without first taking reasonable steps to assess a consumer’s financial circumstances.

  • Require enhanced monitoring of loan portfolios, particularly where automated credit scoring utilized. EBA rules

    EBA rules require financial service providers ensure the performance of automated models in credit decision-making is continuously monitored and measures taken if issues are detected.

  • Apply product design and governance rules to digital microcredit.
  • Limit rollovers and multiple borrowing to decrease risk of over-indebtedness. See Country Example

    UK: maximum of two rollovers for short-term, high-cost credit.