How inclusive is mobile money?
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Two surveys were carried out to understand microlending through mobile phones, and the results are alarming. Indeed, “digital credit through mobile phones is leading in some places to overborrowing, hardship and – horror of horrors – even more financial exclusion”, writes The Economist [paywall].
The first survey, focused on borrowers, was carried out by the World Bank. Analyzing the data of 20m mobile moneyFrom the Latin word moneta, nickname that was given by Romans to the goddess Juno because there was a minting workshop next to her temple. Money is any item that is generally accepted as payment for goods and services and repayment of debts, such as taxes, in a particular region, country or socio-economic context. Its onset dates back to the origins of humanity and its physical representation has taken on very varied forms until the appearance of metal coins. The banknote, a typical representati... More users it found that 35% of Kenyan and 21% of Tanzanian respondents had benefited from digital loans, but that 12% and 31% respectively had defaulted and that the money was rarely used for business needs (less than 40%). It is suspected that many made use of the money for gambling, but it’s difficult to pinpoint when it’s users themselves that responded to the survey.
The London-based think-tank, Centre for the Study of Financial Innovation (CSFI) who has been carrying out surveys of microcredit lenders since 2008, found that for the first time respondents identified “technology” as their number one concern. Mobile money has certainly encouraged incredible growth for the sector, but it is also appearing to result in overborrowing, which leads to greater risk for loan repayments.
In Kenya, the number of people that have been blacklisted by credit bureaus has almost tripled in three years, from 150,000 to 500,000. And microlenders tend to use catchy phrases to attract new users, as in the case with a website in Myanmar, Mother Finance: “No paperwork or collateral required”.
Ultimately, the most effective solution would be better regulation, but fintechs are moving too fast for public authorities, states Deborah Drake of the Centre for Financial InclusionA process by which individuals and businesses can access appropriate, affordable, and timely financial products and services. These include banking, loan, equity, and insurance products. While it is recognised that not all individuals need or want financial services, the goal of financial inclusion is to remove all barriers, both supply side and demand side. Supply side barriers stem from financial institutions themselves. They often indicate poor financial infrastructure, and include lack of ne... More at Accion.
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