Page 106 - ITU-T Focus Group Digital Financial Services – Recommendations

ITU-T Focus Group Digital Financial Services
Recommendations

Title of recommendation Further digital credit provisions for consideration
Working Group Consumer Experience and Protection

Theme Digital credit
Audience for recommendation Regulators

Regulators may also consider additional rules that strengthen consumer protections and promote responsible
development of the digital credit market such as: Requiring that auto-deduct be opt-in (and does not entitle the
provider to set-offs) and that borrowers should be notified each time the provider deducts from, or attempts to
deduct from the account; or restricting the use of customer data that is provided to access a loan for purposes of
marketing or unsolicited loan offers; without obtaining explicit consent from the customer.

As providers and regulators gain experience in benefits and risks of digital credit, new issues will continue to
emerge. The following are examples of trending consumer protection concerns regulators may also want to
consider, if relevant to their country context.

For digital credit that is tied to a deposit or mobile money account, there are varying approaches by providers
for the use of auto-deductions from a customer’s related account to make payments on a loan. AFI reports
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that both Timiza and M-Pawa in Tanzania have the ability to deduct the amount of a late payment from a mobile
money or savings account charge, in addition to charging late fees. In Kenya, however, CGAP reports that in
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the case of non-payment of an M-Shwari loan, none of the airtime or M-PESA balance is transferred to the loan
without the customer’s consent. To strengthen consumer protection and promote responsible development of
digital credit markets, regulators could consider enhancing rules to require customers to opt-in to automatic
deduction programs and governing whether providers are entitled to set-offs for delinquent payments.

Customer data is routinely obtained in digital credit for uses such as credit scoring. Clear and conspicuous
informed consent should exist related to data privacy for all DFS, including digital credit. Thus, another
consumer protection issue to consider is how this data is used for other purposes, such as in subsequent
marketing and unsolicited loan offers.
A related emerging risk that regulators may want to consider is push marketing tactics through unsolicited SMS
messages . In digital, as well as non-digital lending, aggressive sales tactics, whether in person or via digital
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marketing, may lead customers to overborrow. Subsequent defaults can damage a customer’s credit history. In
Kenya, for example, borrowers of digital credit products administered by banks will have their non-repayment
entered with the local credit bureaus, even for failing to repay a loan of only a few dollars , including more than
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400,000 with outstanding loans of less than $2. This raises concerns regarding proportionality of punishment,
especially since in Kenya most lenders do a simple “yes/no” check of credit history rather than using credit
scores that weight the total amount of outstanding debt.

74 Cook, T., McKay, C., CGAP, Top 10 Things to Know About M-Shwari (2015) http:// www. cgap. org/ blog/ top- 10- things- know- about-
m- shwari
75 Kaffenberger, M., Chege, P. CGAP, Digital Credit in Kenya: Time for Celebration or Concern? (2016) http:// www. cgap. org/ blog/
digital- credit- kenya- time- celebration- or- concern
76 Pain of Kenyans blacklisted for amounts as small as Sh100 in mobile loans, bank fees (2016) http:// www. businessdailyafrica. com/
Pain- of- Kenyans- blacklisted- for- amounts- as- small- as- Sh100/ 539552- 3374802- 103kvlwz/

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