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Wel

com

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Highlights of fsd work

on digital credit &

complaints

monitoring

Summit on responsible finance in action/Nairobi/June/2019

Francis Gwer

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Project # 1: market conduct and

practices of digital credit

Over 6m Kenyans have borrowed at least 1 digital loan

Usage of non-regulated digital credit has grown from 0.6% in 2016 to 8.3% in 2019

High uptake but less clarity on the size and composition of the supply-side

New entrants from outside the prudentially regulated sectors have emerged

. NB: Formal borrowing: includes digital borrowing as well

Growth of digital borrowing (%)

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Proliferation of lenders has increased attention to wider consumer protection issues

1. Data privacy and ownership is starting to emerge as a concern: (mining, storing and

sharing consumers’ digital footprints)

2. Emerging signs of debt-stress: mobile loans rank second in the proportion of defaulters by

loan types

3. Nothing like a small debt: law permits listing non-performing loans with CRBs yet only 30%

of Kenyans are aware of CRBs

4. Long-running debates on cost

Loan defaulters from credit types: FinAccess 2019 Levels of debt stress(%): FinAccess 2019

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Public notice issued by financial sector regulators regarding fraudulent digital lenders, July 2018

• CGAP & FSD published a paper in 2018 looking at the demand-side of digital credit

• FSD incepted work in 2018 looking at the supply-side

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Download digital credit Apps from both Google and iOS stores(Total of 110 Apps)

▪ Register to use the loan apps (64 successful)

▪ Check for data & app permissions requested

▪ Request for credit limit

(39 lenders, max amt 16,000)

▪ Borrow from providers who issued credit limit

▪ Two loan cycles▪ Repay first loan at 5 days▪ Repay second loan at

maximum duration allowed▪ Total of 40 loans

▪ Check your credit history from all three credit reference bureaus(54 reports)

Belling the catUnderstanding market conduct & practices of providers

9 research assistants:2 never borrowed4 borrowed & repaid3 with default histories

Step 1

Step 2

Step 3

Step 4Step 5

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110

65

47

A market that is easy to enter and exit..

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Offering savings services when you

are not a deposit-taking institution

is illegal

Even for unscrupulous ‘lenders’

Require the payment of a registration fee

Mimic mainstream and established lenders

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Data requested by fintech lenders

Phone No

Name

Email

ID No

Age

Gender

Physical

addressEconomic

statusSocial media

accIncome range

Data requested by banks

Phone No.

ID No.

Name

Age

Email

KRA PIN

We will seek to protect your data and funds available in your account, however, this is not something we are able to guarantee. …You

consent to the storage, transmission of data and communications through the Internet and you acknowledge that the Internet is not

necessarily a secure communications and delivery system, and you understand the confidentiality and other risks associated with it…We

accept no liability if communications sent via the platform are intercepted by third parties or incorrectly delivered or not delivered.

Use of data is far-reaching

For this purpose, I hereby waive my rights on the confidentiality of client information and expressly consent to the

processing of any personal information and records relating to me that might be obtained from third parties

Should we wish to use your information for marketing purposes, we will inform you prior to such use. You shall be entitled to prevent such

usage by informing us, within 10 days of being informed of the proposed use, that you do not wish to disclose such information

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Lender

No.

loans

issued

Credit

reports

submittedTala 4 0Dolax 1 0Stawika 2 0Upazi 1 0Branch 2 5Okolea 2 2Timiza 3 8Utunzi 2 0Usawa 1 0Craft 2 0Kano 2 0KCB M-Pesa 1 0PesaPap 2 2PesaZone 2 0Stawika 1 0M-Shwari 2 4NIC Mobile

loan

2 6

Ubapesa 2 1mKey 2 2GetSaida 2 0Kopa Cash 2 0MCo-op Cash 1Eazzy Loan

Default history vs successful borrowing

• All banks required to submit credit histories to all the three CRBs (Only 1 consistently submitted)

• Non-banks can submit voluntarily (and some are submitting)

• 40 loans issued, 10 by banks and 30 by non-banks

• 5 loans issued by non-banks to borrowers with default histories (after 32 borrowing attempts)

• Inexperienced borrowers made 20 attempts but only 1 loan was issued by a non-bank

• Rest of the loans issued to borrowers without a default history

Compliance with CRB reporting requirements

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49%

240%

1685%

Median APR

For both bank and

non-

banks

Lowest APR

Highest APR

(Issued by a non-

bank lender)

Bank lenders have lower APRs than

non-bank lenders.

Pricing remains high

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Project # 2: monitoring financial

consumer protection via social

media

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Launched @Pesastory Twitter

handle to initiate conversations

with Kenyans on their

experiences with consumer

protection issues.

3

Launch

Flagged tweets relevant to

each topic over 3 months.

Not all tweets were relevant

and we periodically added

keywords to make filters

more effective

2

Monitor and analyze

Tracked every tweet to 29

financial institutions and

sorted them into 10

consumer protection topics

by keywords

1

Track

Testing the utility of Twitter to

provide insights on financial

consumer protection issues

and encourage a public

dialogue through the

creation of a Twitter handle,

@Pesastory

Pesastory

FSD Kenya.

CitiBeats

Using CitiBeats AI text

analysis platform to track

and analyze consumer

protection relevant tweets

August to November 2018

Process2 experiments in 1

Curate threads of tweets on

related topics to demonstrate

common experiences & challenges.

4

Curate

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0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Providers

% Tweets per category, by provider

2%

7%

10%

0%

21%

3%

7%

3%

50%

2%

Agents

Blacklisting

Charges

Frozen account

Functionality

Insurance claims

Loans

Privacy

Resolution/customer service

Scams

Distribution of tweets across consumer protection topics for a Kenyan bank, November 2018

Percentage of Tweets related to this topic

Observation 1:

• Most tweets are on customer service followed

by functionality.

• Distribution fairly similar across banks and MNOs

Platform allowed us to restrict data to a single provider

At any given time

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On 2nd Nov Platform showed 65 tweets sent to EB on customer service

Sample Tweets sent by Equity customers on 2nd Nov

Observation 2(1): analysis is useful in

detecting spikes in customer concerns

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Spike in Ecobank appeared to relate to access to accounts by

customers

Observation 2(2): monitoring trends over timeVisual representation of how the volume of tweets on CP issues change over time for providers

Observation 3: Missing data on finTechs

• Twitter users most likely own a

smartphone

• Volume of tweets on fintechs very

low

• Most have in-app functions for

complaints

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Reflections: what do the results mean?

It's useful for you to write something special

For consumers-

• Digital credit: the digital world is shifting risks

in financial services with both positive and

negative consequences for consumers

• Complaints: Need to assert their rights.

Social media is changing ways in which

customers engage with providers, allowing

them to publicly call-out consumer

protection issues

For regulators-

• Gains made have been undermined by

absence of effective regulation

• There’s utility in leveraging social media

analytics for consumer protection market

monitoring especially in markets with fast-

growing DFS

• Such methods should not be seen as a

replacement of existing tools but rather

an enhancement

FSD Kenya | Creating Value through financial inclusion19

Thank YouFor your time!

FSD Kenya | Creating value through

financial inclusion

3rd Floor, 9-Riverside, Riverside DriveP.O. Box 11353, 00100 Nairobi, Kenya|Telephone: +254 20 513 7300Website: www.fsdkenya.org |

Creating Value through Financial Inclusion

FSD Kenya.