Page 105 - ITU-T Focus Group Digital Financial Services – Recommendations

ITU-T Focus Group Digital Financial Services
Recommendations

AFI cites a need for comprehensive disclosure of costs to allow for comparison between digital and non-digital
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credit options, which may be difficult as many digital products are priced in terms of a periodic (e.g., weekly,
monthly) “facilitation fee” or other term rather than interest. Even when an interest rate is disclosed, the very
short tenor may obscure the long-term cost if the loan is renewed repeatedly. This makes it important for
markets to have standardized methods for calculation of cost of credit, such as the APR or effective interest
rate (EIR) methods employed in many jurisdictions for conventional credit. However, policymakers should also
consider whether APR or EIR is the most salient way to communicate costs of short-term credit to consumers,
and, if not, be open to additional methods for disclosing costs, such as the nominal value of all charges.

Another common feature is for a digital loan to be rolled over if not fully repaid at maturity, with assessment
of an additional fee on the outstanding balance. Disclosures should communicate rights and responsibilities
related to early, partial, late, or non-payment of a loan. Regulators may want to discuss standards or limits on
the number of roll overs to avoid turning a short-term loan into a long-term debt that becomes larger with
every renewal.

The disclosure regimen should be complemented by financial education and awareness efforts. Research by
TechnoServe on the experiences of farmers using the M-Pawa digital savings and credit product in Tanzania
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shows that customers who are inexperienced users of financial services find M-Pawa features, such as the
interest rate and loan limits, difficult to understand despite various methods to communicate product terms,
such as radio, billboards, SMS messages, and training sessions. At the same time, TechnoServe, in partnership
with Vodacom, CGAP, and Arifu, developed an SMS-based educational program for these same farmers to help
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increase understanding. This case highlights how providers can use consumer testing and innovation in digital
communication channels to help consumers better understand, engage with, and use digital credit products.

72 Zhou, A.. CGAP, M-Pawa 1 Year on: Mobile Banking Perceptions, Use in Tanzania (2015) http:// www. cgap. org/ blog/ m- pawa- 1-
year- mobile- banking- perceptions- use- tanzania
73 Mazer, R., CGAP, Interactive SMS Drives Digital Savings and Borrowing in Tanzania (2016) http:// www. cgap. org/ blog/ interactive-
sms- drives- digital- savings- and- borrowing- tanzania

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