One billion mobile money accounts.

This is the headline figure that emerged from this year’s <a href="https://www.gsma.com/sotir/wp-content/uploads/2020/03/GSMA-State-of-the-Industry-Report-on-Mobile-Money-2019-Full-Report.pdf" target="_blank" rel="noopener noreferrer">State of the Industry Report on Mobile Money</a> by GSMA. The growth in mobile money accounts is indeed remarkable. But beyond this number, the report tells the story of an evolving industry, marked by significant advances in volume of activity, types of transactions, people using the services, and emerging business models.

Based on the current trajectory, mobile money accounts are on pace to generate $1 trillion in annual transactions by 2023. Will COVID-19 derail this progress? Or will the pandemic demonstrate the power of mobile money, and further fortify the critical role mobile money plays in low- and middle-income countries (LMICs)?
<h2>The Digital Ecosystem Comes to Life</h2>
Ever since mobile money emerged in the mid-2000s, businesses, researchers, and those working to advance inclusive finance have talked about how to get more money to stay in the system (see examples <a href="https://www.cgap.org/blog/m-pesa-replacing-cash-kenya">here</a> and <a href="https://www.cgap.org/blog/mobile-money-10-things-you-need-know">here</a>). If funds stay in the mobile money ecosystem, the complexity and inherit cost of cashing in and out in remote areas is diminished and users can benefit from other products and services beyond money transfer. In the early days, most people put money in for the sole purpose of someone else taking it out. That story seems to finally be changing (at least in some markets) as we now see a higher value circulating than exiting the global mobile money ecosystem ($22 billion vs $18 billion). Further, we also now see more digital transactions than cash-based transactions, indicating that people are leaving money in their digital wallets and using those funds to make digital transactions.

The report points to a few reasons for this shift. First, digital payments are quickly becoming a routine part of people’s lives. Taxis, schools, shopkeepers, and even governments increasingly <a href="https://www.betterthancash.org/tools-research/reports/opportunities-of-digitizing-payments">accept mobile money payments</a>, so the need to take cash out of the system to conduct daily transactions is lessening. Second, the industry is finding ways to make it easier for people to make those routine transactions, such as QR codes and overdraft coverage. For example, the report cites that merchants using QR codes transact three times more in value than those without. And third, mobile money providers are offering value-added tools to help micro and small enterprises not only better manage digital payments but also other business functions, such as inventory management and accounting.
<blockquote>The evolution toward a digital ecosystem is uneven worldwide.</blockquote>
That said, this evolution toward a digital ecosystem is not necessarily seen evenly throughout the world. Latin America and the Caribbean saw a decline in active accounts and transaction volume in 2019. And while South Asia has a high overall number of registered accounts, the percent of active accounts in the region is the lowest in the world. In India and Bangladesh, a survey of adults with a SIM card but no mobile money account found that their primary reasons for not using mobile money include a preference for cash and a high number of alternate ways to transfer money.

Sub-Saharan Africa, by contrast, has the highest percentage of active accounts at 50 percent (see graph below). In Mozambique, the same survey found that literacy and skills were the biggest obstacle to mobile money usage rather than a preference for cash. It’s clear that the evolution of mobile money is context specific and the trajectory will not look the same everywhere. But in many parts of the world, more is needed to develop the ecosystem in a way that provides value to the user, either by providing a service that beats the alternative options (e.g. faster, more convenient, less expensive) or offers new services not available via other channels (e.g. digital credit, value-added services for MSMEs, insurance, etc.).


One Billion Accounts in the Pandemic Era: Insights from GSMA’s Mobile Money Report

Latin America and The Caribbean

South Asia

Sub-Saharan Africa

Banks

Financial Service Providers

Credit

Digital Credit

Fintechs

Mobile Banking

Payments

Partnerships

Blog Post

The <a href="/about/what-we-do/hbs-accion-program-on-strategic-leadership-in-inclusive-finance">HBS-Accion Program on Strategic Leadership in Inclusive Finance</a> is the first executive education program of its kind to provide high-level management and leadership training to those shaping the microfinance industry, including CEOs of leading microfinance institutions and executives of mainstream banks entering the microfinance market.
<div class="sc-htpNat hKaJAO"><article class="text-block__article sc-TOsTZ dUoRvJ">
<h2>Dates</h2>
The 2020 HBS-Accion Program on Strategic Leadership in Inclusive Finance, originally scheduled to take place March 29 to April 3, has been postponed indefinitely due to growing concerns and travel restrictions across the globe related to Covid-19. Please contact <a href="mailto:mlongwell@accion.org">Maddy Longwell</a> if you are affected by this cancellation.
<h2>Deadlines</h2>
The application period is now closed. Applicants will be notified of their acceptance in February.
<h2>Fees</h2>
The program costs <strong>$8,850 USD</strong> including tuition, fees, housing and meals. Attendees will need to pay in full to be considered accepted into the program. Airfare is the responsibility of the attendee.
<h2>Scholarships</h2>
The <a href="https://www.citigroup.com/citi/foundation/">Citi Foundation</a> provides a limited number of partial scholarships to participants who otherwise cannot attend because of the cost. Please note that we are unable to offer scholarships to all applicants who apply. If you would like to apply for a scholarship, please indicate so in the application.
<h2>Questions</h2>
For additional questions, contact the Admissions Committee at <a href="mailto:hbsaccion@accion.org">hbsaccion@accion.org</a>. For questions about the 2020 cohort, please contact <a href="mailto:mlongwell@accion.org">Maddy Longwell</a>.

</article></div>

HBS-Accion Program on Strategic Leadership in Inclusive Finance 2020

Citi Foundation

HBS-Accion Program on Strategic Leadership in Inclusive Finance

North America

United States

Delivery Channels

Digital Financial Services

Microfinance

Microfinance Institutions

Event

Hema Bansal is presenting at two events at the 3rd Asia Finance Forum:
<h2>Fintech Bootcamp
Monday, November 4, 2019 3:30-5:00pm</h2>
Financial inclusion is increasingly driven by fintech firms independently, or in partnership with banks. Although financial services delivery models differ across countries, digital financial services have shown promising financial inclusion outcomes. There is little evidence, however, that these services are being delivered responsibly, increasing the potential risks to clients.

The Center for Financial Inclusion’s (CFI) <a href="http://smartcampaign.org/about/smart-microfinance-and-the-client-protection-principles/digital-credit-standards">Smart Campaign digital credit standards</a> address risks to consumers, particularly those arising from new digital products or channels. At the Fintech Bootcamp, we will share these standards, which address a wide range of risks clients are exposed to when accessing digital credit, including but not limited to data privacy and security, over indebtedness, and lack of transparency. They are meant to guide both fintechs and traditional financial service providers undergoing digital transformation. We will also share CFI’s approach to building the financial capability of consumers in accessing digital financial services.

Hema's session will cover the following:
<ul>
 	<li>Responsible standards for digital credit design and delivery</li>
 	<li>Adaptability of responsible digital credit standards nationally and regionally</li>
 	<li>Financial capability approaches</li>
 	<li>Strategies for embedding responsible finance in digital financial services at the country level</li>
</ul>
<h2>Inclusive Finance: Combining Fintech Innovation, Public-Private Collaboration, and Responsive Regulation to Reach the Poorest
Wednesday, November 6, 2019 9:20-10:30am</h2>
Lack of financial and digital literacy is a major reason for lack of access to finance for women and in rural communities. Policies to enhance financial inclusion, especially through technology, should involve more active financial literacy and educational programs.

Learn about new products and services, players, and channels that address the essential need of financial literacy to reach the underserved and unbanked and drive the shift from financial access to financial usage.

Moderator: Lotte Schou-Zibell, Regional Director, Pacific Department, ADB

Panelists:
<ul>
 	<li>Hema Bansal, Senior Director, The Smart Campaign, Center for Financial Inclusion at Accion</li>
 	<li>Peter Morgan, Senior Consulting Economist and Vice Chair for Research, ADB Institute</li>
 	<li>Anil Gupta, Partner – Payments and Distribution, Microsave Consulting</li>
 	<li>Grace Tan, Head of Corporate Communications, Visa Inc.</li>
</ul>
&nbsp;

&nbsp;

3rd Asia Finance Forum

Consumer Protection

Financial Capability

Responsible Digital Finance

<div class="sc-htpNat keAZAq">
<div class="sc-gisBJw iCFDng sc-bwzfXH doQVok">
<div class="sc-htpNat bBOJNH">
<p class="text-block__article sc-kjoXOD hLBZML">The <a href="/about/what-we-do/board-leadership-for-impact-program">Board Leadership for Impact Program</a> (BLI) is dedicated to empowering corporate leaders in the social enterprise sector to <strong>achieve business growth and social impact</strong>. By focusing exclusively on executive leadership and reframing board effectiveness as a strategic imperative, BLI strengthens leadership and management to ensure these companies sustain business growth and drive social impact.</p>

<h3 class="text-block__article sc-kjoXOD hLBZML">Join a select group of social enterprise leaders at the BLI Nairobi 2020 Workshop,  February 23-25, 2020, at the Fairview Hotel in Nairobi, Kenya.</h3>
BLI is offered as a two-day interactive workshop where participants gather with faculty and facilitators for role play, simulations, discussions, and more. Workshops are augmented with a robust virtual portal where participants can access resources and videos, participate in discussions, and stay connected with hundreds of leaders in our global network. Attendees will have the opportunity to engage with peers on issues critical to social enterprise growth and impact, including digital strategy and culture, data, partnerships and financial inclusion in the digital age.
<h3><strong>Pricing</strong></h3>
The BLI Nairobi 2020 Workshop tuition is <strong>$2,500 USD</strong>, excluding airfare and lodging. Discounts, group rates and partial scholarships are available:
<ul>
 	<li><strong>Early Bird Rate - $2,250 USD</strong> (10% discount). Available to all registrants through December 31, 2019.</li>
 	<li><strong>Group Registration Rate - $2,250 USD</strong> per person for groups of two or more (10% discount per person).</li>
 	<li><strong>Limited partial scholarships</strong> will be considered on a case-by-case basis. You can request scholarship consideration during the registration process.</li>
</ul>
<h2>Registration is now closed.</h2>
<h3>Questions</h3>
Learn more about the <a href="/about/what-we-do/board-leadership-for-impact-program">Board Leadership for Impact Program</a> and <a href="mailto:gjaso@accion.org">contact us</a> if you have questions or need more information.

</div>
</div>
</div>

Board Leadership for Impact Nairobi 2020 Workshop

Board Leadership for Impact Program

Kenya

Agricultural and Rural Finance

Customer Centricity

Education Finance

Energy Finance

Governance

Housing Finance

Risk Management

All is not well in the country that pioneered mobile credit. A new <a href="/making-digital-credit-truly-responsible">report on digital credit in Kenya</a> from <a href="https://www.microsave.net/">MSC</a>, commissioned by <a href="/about/what-we-do/the-smart-campaign">the Smart Campaign</a> and the <a href="https://sptf.info/">SPTF</a>, shows that with continued dramatic growth rates, the sector also experiences cripplingly high default and delinquency, enabled by poor business practices and weaknesses in both the credit reporting infrastructure and regulatory jurisdiction.

Most notably, the report reveals very high rates of delinquency and default. Among active digital loans, more than a quarter are non-performing. About 2.2 million Kenyans are said to have delinquent loans. In some cases, liberal use of refinancing and rescheduling hides this level of delinquency in lender portfolios. At the same time, the report points out that about half of these non-performing loans are for amounts less than $10. These findings are broadly consistent with results cited by CGAP in 2016, which found that 50 percent of digital borrowers in Kenya repaid their loans late, and 12 percent defaulted.
<blockquote>Despite continued growth of digital credit in Kenya, high delinquency, default and interest rates persist in the market and credit bureaus haven't yet caught up with the digital age.</blockquote>
The report also details shortcomings in credit reporting, given that many digital lenders neither consult nor report to the credit reporting bureau as fully or regularly as they should. The credit reporting bureaus were clearly set up for a pre-mobile era, which suffer from issues related to inclusion of all types of lenders, frequency of uploading data (monthly, when daily is more relevant for today’s short term loans), and ease of connection among all the players in the credit reporting ecosystem. As a result, many lenders are not consistently using credit bureaus—neither ensuring that the information is updated and correct, nor fully consulting it prior to lending.

Pricing is also an issue. The market leader, M-Shwari, which accounts for about two-thirds of all digital loans, charges an annual percentage rate (APR) of 90 percent. The low-price option provided by Kenya Commercial Bank is a fairly reasonable 44 percent APR, but the high end of the price range includes providers charging APRs well into the hundreds. Granted that these are small, short term loans where interest payments are not expected to be sustained for an entire year. Nevertheless, the promise of digital to bring down prices does is not yet in sight.

Other issues noted in the report include non-transparency regarding portfolio quality, identity theft, misuse of client data, multiple borrowing and loan bicycling by clients, and client use of loan proceeds for sports betting.

The picture that emerges suggests that the still-exploding market of very small, “nano” loans needs to be brought into more orderly operation. Consumers and providers are operating in risky ways. The current state of the market is not beneficial for either.
<blockquote>Raising the bar for blacklisting customers and public awareness about defaulting on loans are among our recommendations for improving digital credit.</blockquote>
One issue specific to this nano-loan market concerns the reporting of very small non-performing loans to credit bureaus, with negative consequences, such as curtailing of access to credit, for hundreds of thousands of borrowers. MSC, the Smart Campaign and SPTF recommend that regulations be put in place such that delinquencies and defaults among loans below some fixed amount not be reported to the credit bureau (whether US$2, $5 or $10 – the report actually recommends a cutoff of 5% of the monthly per capita GDP). It also recommends that the government launch a public awareness campaign about how credit bureaus work and the consequences of default so consumers will better understand the risks involved in borrowing.

The regulators, credit reporting agencies and lenders in Kenya are aware of these concerns and working to improve the situation. A new association of digital lenders (Digital Lenders Association of Kenya) has been formed to create consumer protection standards and the central bank is exploring ways to upgrade the credit reporting ecosystem. The Smart Campaign recommends that both lenders and regulators consider adopting the <a href="http://www.smartcampaign.org/about/smart-microfinance-and-the-client-protection-principles/digital-credit-standards">digital credit standards</a> and <a href="https://www.smartcampaign.org/tools-a-resources/1210-handbook-on-consumer-protection-for-financial-inclusion">model regulations</a> covering issues ranging from transparency, to the fair use of algorithms, to protection of customer data.

Kenya’s unprecedented dynamism in mobile money, digital credit and financial inclusion is envied across the world. If authorities and providers can bring the participants in these sectors into a better-functioning marketplace, Kenya will benefit greatly from the innovation the country continues to spawn.

Red Flags in Kenya’s Nano-Credit Market

The Smart Campaign

Keeping Clients First

Credit Provision

Default

Enabling Environment

Interest Rates

Nano Loans

Over-indebtedness

Policy, Regulation and Government Initiatives

Product Pricing

Transparency

Digital credit has emerged as a new and profitable service offering that has great potential to increase financial inclusion. Yet, if not carefully managed, digital credit also runs the risk of excluding, over-charging, and over-extending customers.

Seven years since the first digital credit product launched, the market in Kenya has grown exponentially and hosts a diverse ecosystem with more than 50 supply-side actors. The phenomenal expansion of digital credit in Kenya serves as a test-bed for the product and offers lessons for digital credit suppliers and regulators around the world.

SPTF and the <a href="/about/what-we-do/the-smart-campaign">Smart Campaign</a> commissioned MicroSave Consulting (MSC) to study the dynamics of the digital credit sector on both demand and supply sides. The output of the study was a comprehensive report on the current state of digital credit in Kenya. It looked at the evolving challenges in digital credit and made recommendations for a more responsible and customer-centric delivery of the product.

With participation from Smart Campaign Senior Director <a href="/bio/alexandra-rizzi">Alexandra Rizzi</a>, this webinar will:
<ul>
 	<li>Help participants understand the digital credit landscape in Kenya</li>
 	<li>Assess the progress and challenges around making digital credit responsible and inclusive</li>
 	<li>Recommend steps towards a more responsible delivery of digital credit</li>
</ul>
We hope you can join us!

<img class="alignnone size-large wp-image-36766" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2019/09/MSC_Webinar-1-1024x683.jpg" alt="Infographic describing webinar schedule" width="1024" height="683" />

Webinar: Making Digital Credit Truly Responsible

SPTF

Telcos

We are convening a select group of social enterprise leaders at the <a href="/about/what-we-do/board-leadership-for-impact-program">Board Leadership for Impact Program</a> (BLI) inaugural workshop taking place October 27-29, 2019, at the Fairview Hotel in Nairobi, Kenya.

BLI is dedicated to empowering corporate leaders in the social enterprise sector to achieve business growth and social impact. By focusing exclusively on executive leadership and reframing board effectiveness as a strategic imperative, BLI strengthens leadership and management to ensure these companies sustain business growth and drive social impact.

BLI is offered as a two-day interactive workshop where participants gather with faculty and facilitators for role play, simulations, discussions, and more. Workshops are augmented with a robust virtual portal where participants can access resources and videos, participate in discussions, and stay connected with hundreds of leaders in our global network. At this inaugural workshop, attendees will have the opportunity to engage with peers on issues critical to social enterprise growth and impact, including digital strategy and culture, data, partnerships and financial inclusion in the digital age.

Board Leadership for Impact Program Launch Workshop

Consumer Credit

Human Touch

Neobanks

Underserved Groups

<strong>WASHINGTON, DC, August 27, 2019</strong> – The Center for Financial Inclusion at Accion (CFI) has launched an executive education program for financial service providers serving low-income communities in emerging markets. Through peer learning and exchange, the <a href="/about/what-we-do/board-leadership-for-impact-program">Board Leadership for Impact Program</a> will empower executives and board members to foster client centricity, lead digital transformation, sustain business growth and drive social impact. In partnership with the <a href="https://www.citigroup.com/citi/foundation/">Citi Foundation</a> and <a href="https://www.fmo.nl/">FMO</a>, the Dutch development bank, supporting program implementation and participant scholarships, the Board Leadership for Impact Program will offer multiple in-person workshops per year coupled with a robust virtual portal.

Derived from CFI’s five-year <a href="https://content.centerforfinancialinclusion.org/about/what-we-do/africa-board-fellowship-program/">Africa Board Fellowship Program</a>, which fostered the growth and development of more than 300 executives and board members of financial service providers serving more than 10 million clients in Africa, the Board Leadership for Impact Program will now expand to include early stage to mature companies offering financial services to underserved customers that operate in emerging markets around the world.

“Our experience with leadership development through peer exchange will inform our efforts through this new program to cultivate a community of leaders who have the skills and the network to help their organizations thrive,“ said <a href="/bio/deborah-drake">Deborah Drake</a>, Vice President, Center for Financial Inclusion at Accion. “Tackling challenges like achieving sustainable growth or pursuing digital transformation, particularly as a mission-driven organization, takes strategic leadership at the board level.”

Through role play, simulations and facilitated discussion, participants will gain new perspectives, skills, and knowledge on topics critical to social enterprise growth and impact, including risk management, board dynamics, digital transformation and inclusive digital finance. They will join an active community of alumni of the Center for Financial Inclusion at Accion’s <a href="https://www.centerforfinancialinclusion.org/get-involved#fellow-exec-ed">executive education programs</a>.

“By developing and strengthening leadership skills that drive business growth and social impact, our partnership with the Center for Financial Inclusion at Accion will help accelerate financial inclusion and economic progress around the world,” said Florencia Spangaro, Director of Programs, Citi Foundation.

“FMO is a proud partner of Accion for over a decade and we realize that creating a lasting impact starts in the board room. Strengthening the management of financial service providers and enterprises will help ensure business longevity and commitment to underserved customers,” said Gerbrich Salverda, Capacity Development Officer at FMO.
<p style="text-align: center;"><strong>###</strong></p>
<strong>About the Center for Financial Inclusion at Accion</strong>

The Center for Financial Inclusion at Accion (CFI) is an action-oriented think tank that engages and challenges the industry to better serve, protect, and empower clients. We develop insights, advocate on behalf of clients, and collaborate with stakeholders to achieve a comprehensive vision for financial inclusion. We are dedicated to enabling 3 billion people who are left out of – or poorly served by – the financial sector to improve their lives.
<a href="http://www.centerforfinancialinclusion.org/">www.centerforfinancialinclusion.org</a>
<a href="https://twitter.com/CFI_Accion">@CFI_Accion</a>
<p style="text-align: center;"><strong>###</strong></p>
MEDIA CONTACT

Center for Financial Inclusion at Accion
<a href="/bio/virginia-moore">Virginia Moore</a>
<a href="mailto:vmoore@accion.org">vmoore@accion.org</a>
+1 202.393.5113

The Center for Financial Inclusion at Accion Launches Executive Education Program for Financial Service Providers to Enable Business Growth and Social Impact

Informal Credit

Insurance Companies

Press Release

With an emerging consensus around the importance of responsible digital credit, demand is rising for a shared set of criteria to assess the practices of digital lenders. Investors and regulators want a way to evaluate consumer protection practices among the financial service providers they invest in or regulate. Digital financial service providers also want guidance to improve their practices and demonstrate that they are committed to putting responsible finance into action.

The Smart Campaign at CFI launched the Client Protection Standards for Digital Credit in June 2019 to consolidate CFI’s research on consumer protection, industry learnings, consultations with digital financial service providers, and on-the-ground testing with digital credit companies.

Client Protection Standards for Digital Credit

Toolkits and Guides

Smart Campaign team members <a href="/bio/isabelle-barres">Isabelle Barres</a> and <a href="/bio/alex-taylor">Alex Taylor</a> will lead a lunch session on Wednesday, April 3, 2019 to share the <a href="/help-us-shape-standards-for-responsible-digital-lending">draft digital lending standards</a> and discuss the future of Smart Certification for digital credit providers.

On Thursday, April 4, 2019, Isabelle Barres will present on a panel entitled <em>Evolving Practices for Responsible Digital Financial Services</em>.

Panel Description:

Regulations and supervisory frameworks in DFS are often nascent or fragmented, with industry associations evolving to help DFS players to mitigate DFS risks. This session will highlight the latest industry practices, along with innovators that have adapted their business to manage new risks, while scaling digital financial services. Examples by product and business models may include: payments, mobile, solar energy, digital identity, among others. What are the latest movements in responsible digital inclusion and how can signatories and investors apply evolving practices today?

Responsible Finance for Digital Inclusion: Investing for Impact

Impact Investing

Alexandra Rizzi

Senior Director, Smart Campaign 

Mayada El-Zoghbi

Managing Director

Alex Taylor

Alexis Beggs Olsen

Elisabeth Rhyne

Eric Noggle

Greta Bull

Isabelle Barrès

Jeffrey Riecke

Jenny  Frydrych

John Owens

Lauren Braniff

Mina Zhang

Mireya  Almazan

Nadia van de Walle

Patrick Traynor

Wayne Hennessy-Barrett

Benin

East Asia and Pacific

El Salvador

Europe and Central Asia

Myanmar

Nigeria

Panama

Romania

Sri Lanka

Sudan

Timor-Leste

Uganda

Vietnam

Access Usage Gap

Agent Banking

Alternative Data

Crop Insurance

Data Analytics

Financial Health

Financial Technology

Fraud

Human Centered Design

Insurance

Life Insurance

P2P Lending

Payday Loans

Privacy

Resilience

Saving

Smart Certification

Trends

Youth

Report

Webinar

The majority of Kenyans have mobile money accounts; their activity demonstrates digital financial services’ potential. Accion helps Kenyan innovators harness emerging technologies to create new financial services.

Digital lending has the potential to close the credit demand gap for unbanked, low-income customers, but the rapid growth of the sector has raised consumer protection concerns.

In Kenya alone, a leading testing ground for the digital credit sector, there are more than 50 providers and an estimated<a href="https://www.cgap.org/blog/kenyas-digital-credit-revolution-five-years"> one in four</a> Kenyans have taken a digital loan. With <a href="https://www.gsma.com/mobileeconomy/wp-content/uploads/2018/05/The-Mobile-Economy-2018.pdf">mobile phone ownership saturating</a> developing markets, we can anticipate similar acceleration in the digital lending space globally.

<a href="https://www.cgap.org/blog/its-time-slow-digital-credits-growth-east-africa">Recent findings</a> have generated debate over whether or not these new products are translating into real benefits for base of the pyramid consumers. Demand is rising from investors, regulators, and providers for ways to demonstrate responsible practices in digital lending.

To fill the gap, the Smart Campaign has undertaken research to better understand risks and benchmarks for responsible digital financials services. In partnership with <a href="https://www.mf-rating.com/">MFR</a>, we’re working with providers to conduct field assessments that identify best practices and help us to determine where to set the bar for responsible behavior. These field assessments, industry research, and engagement with DFS providers in Smart’s <a href="https://www.smartcampaign.org/about/fintech-protects-community-of-practice">Fintech Protects Community of Practice</a> will lead to standards for responsible digital credit that are sustainable for the industry while keeping client needs as the central focus.

<a href="http://www.4g-capital.com/">4G Capital</a>, a digital MSME lender in East Africa and a member of Fintech Protects, recently <a href="https://africanbusinessmagazine.com/company-profile/4g-capital/4g-capital-together-with-the-centre-for-financial-inclusion-smart-campaign-defines-standards-for-client-protection/">partnered with the Smart Campaign</a> to conduct a field assessment. We asked 4G Capital CEO Wayne Hennessy-Barrett for his take on responsible digital lending and the value of industry standards for consumer protection.
<h4>Q: Tell us about the origins of 4G Capital and its products.</h4>
WHB: We began operations in Kenya in 2013, starting with microloans for enterprises using only mobile money. As our relationship with our customers grew, we began informal coaching and mentoring of clients to improve their performance. This evolved quite quickly into a program of enterprise-skills trainings packaged with each loan. We now have a number of different working-capital credit products which are the right size and timed according to the specific needs of the business user, and we’re also scaling with partners to reach tens of thousands of new clients each month.
<h4>Q: What was your motivation for joining Fintech Protects and inviting the Smart Campaign to work with 4G in a field assessment of responsible practices?</h4>
WHB: We have always been a mission-driven business. As a fintech lender, Fintech Protects was the perfect forum to share our experiences and learn from others to find ways to close the finance gap, which leaves so many businesses and families excluded.

The field assessment was a rigorous, end-to-end audit of whether we were able to ‘walk the talk.’ It is nearly impossible to self-assess with the right level of accuracy. Either you’re too hard on yourself, or you get distracted by successes and don’t zero in on the things that need to be fixed.
<h4>Q: What did the field assessment confirm about your business? What surprised you?</h4>
WHB: I was delighted, but not surprised, by the level of professionalism and rigor exercised by Smart and MFR. It was encouraging to get positive feedback on the positive customer outcomes we continue to see consistently – that really is the most important thing that we need to reinforce and protect.
<h4>Q: How do you think about scale and growth of your business in the context of a blended high-touch/high-tech model?</h4>
WHB: Accounting for inflation, forex risk and future value of money, this is the $64 Billion Question!

We need to scale to reach more excluded people, catalyze more value chain growth, and, of course, grow our own business. Our transformation program (which is a continuously evolving cycle) sees our AI and technology developing to continue to improve predictive underwriting to further deliver value to our clients as part of supporting their overall financial health. This should free our people to really focus and excel at what they’re good at: relationships, customer care, and contributing their own experience and knowledge to help us evolve with our clients’ needs.
<h4>Q: Of all the areas that the <a href="https://www.smartcampaign.org/about/smart-microfinance-and-the-client-protection-principles">Client Protection Principles</a> cover, what do you think will be the single most important issue digital lenders must contend with over the next five years?</h4>
WHB: It has to be data protection. There are a ton of fintech lenders who are trying to do good things at the moment, but where data can sometimes be gathered in a way clients, if fully aware, would find really intrusive. We need to reset the conversation about data and the way businesses conduct themselves so that even the most remote and excluded have digital self-sovereignty and power over their own data.
<h4>Q: How do the client protection standards provide value to you as a business?</h4>
WHB: Happy clients = happy business. It really is that simple.

Partnering with Providers to Set DFS Standards for Client Protection

This webinar features CFI Fellow Patrick Traynor — Professor in the Department of Computer and Information Science and Engineering (CISE) at the University of Florida. Our conversation will provide an overview of data privacy and security issues in online lending, highlight specific deficiencies as identified in our three-pronged analysis of over 50 digital finance providers, and provide recommendations for providers so they can ensure that consumers have the best possible protections of their personal data.

This research raises important concerns about how digital finance companies currently address data privacy and security issues and points to areas for improvement when creating strong defense mechanisms and privacy policies that protect consumer data. By examining digital lenders’ privacy policies, the mechanisms for securing the connections between customers’ mobile devices and the internal servers that process and store that data, and the terms of service of their offerings, Patrick's report aims to identify how well providers are addressing these data privacy and security vulnerabilities and lays the groundwork for future research that can assist companies, consumers, and regulators in improving security standards for digital finance.

Webinar: Digital Finance and Data Security

CFI Research Fellows Program

Mobile phones and networks are transforming the world of finance, creating opportunities  for widespread financial inclusion, especially among neglected regions and groups. Security and privacy should be among the most important considerations when building digital finance systems.
Credit decisions are often based on sensitive information and online finance offerings are no exception. The sensitivity of this information gives rise to a series of critical questions for customers:
<ul>
 	<li>To whom am I giving my data? And who else do they allow to access it? For what purposes?</li>
 	<li>How do the companies protect data so that people who do not have legitimate access cannot use or steal it?</li>
 	<li>What rights and options do I have if something does go wrong?</li>
</ul>
The goal of this research, conducted by CFI Fellow Patrick Traynor, is to examine how well digital lenders are responding to these questions.

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Digital Finance and Data Security

<em>This post was originally published on the <a href="http://www.cgap.org/blog/financial-inclusion-glass-half-empty-or-half-full-pt-2">CGAP Blog</a> and is re-published here with permission.</em>

As I stated in my <a href="http://cfi-blog.org/2018/08/09/financial-inclusion-is-the-glass-half-empty-or-half-full-part-1/">previous blog</a> on the debate over the latest <a href="https://globalfindex.worldbank.org/">Findex</a>, we continue to make important progress toward the goal of universal financial access. Progress is uneven and the timeline uncertain, but we have a pretty clear idea of what to do. Unfortunately, the picture is less clear on the important question of usage, and CFI is right to raise high dormancy rates as a concern in its report, “<a href="https://www.centerforfinancialinclusion.org/publications-a-resources/browse-publications/996-financial-inclusion-hype-vs-reality">Financial Inclusion: Hype vs Reality</a>.” As with the access data, however, disaggregating the figures on account usage reveals differences across countries that offer more encouraging signals than the aggregated figures, albeit with one very important caveat.

Findex shows we still have a lot of work to do on usage: 25 percent of account holders in the developing world haven’t used their accounts for a single deposit or withdrawal in the past year (as shorthand, I will refer to these as dormant accounts). Part of the challenge in the Findex data, however, is that backsliding or slow progress in a few big markets is drowning out progress in the rest of the world. The primary reason is India, which is skewing the account dormancy figures significantly because of its large population and extraordinarily high levels of inactivity — at 48 percent of account holders in 2017. If we take India out of the equation, the percentage of inactive account holders in the developing world comes down from 25 to 16 percent.

If, however, we look at the change in dormancy rates for individual countries, rather than the aggregate, a more nuanced picture emerges. Findex collected data on dormant account holders for 87 low- and middle-income countries in 2014 and 2017. Of these countries, 46 saw their dormancy rates go down by an unweighted average of 14 percentage points, 12 saw their dormancy rates go up by an average of 10 percentage points, and 29 had no discernable change (as the difference was within the 3.5 percent margin of error in either direction).

<img class="size-full wp-image-32066 aligncenter" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2018/08/gretabullchangesininactivityrates-1.png" alt="" width="632" height="318" />

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But here’s where the caveat comes in. Findex’s dormancy and usage numbers are not quite what they seem. To ensure greater accuracy in capturing mobile money accounts, respondents are not asked if they have a mobile money account; they are asked if they have used a mobile money account in the past year. In other words, Findex counts only active mobile money accounts. For financial institution accounts, respondents are asked if they have an account and then whether they have used it in the past year, so a clear distinction can be made between active and inactive accounts (see the Findex glossary for details). The net effect is to understate the number of account holders added in Sub-Saharan Africa and to overstate the activity rates for these accounts.

Given the prevalence of mobile money in Sub-Saharan Africa, this has a significant impact on Findex’s activity rates for the region. A back-of-the-envelope exercise using GSMA’s supply-side data (which correlate closely with those of Findex), helps illuminate the degree to which this affects Africa’s dormancy data. According to GSMA, there were 338 million registered mobile money accounts in Sub-Saharan Africa in 2017. If we add these accounts to the 195 million financial institution accounts from Findex, we can infer that there are roughly 533 million registered accounts in the region (the number of account holders will be lower because of people holding both mobile money and financial institution accounts, which Findex accounts for). This means that roughly 232 million accounts have been added since the last Findex, not the 72 million that you would get from doing the math with the Findex data.

That’s potentially good news, but with this increase in number of accounts comes an increase in the overall inactivity rate in Africa. Roughly 64 percent (216 million) of the mobile money accounts reported by GSMA were considered inactive. If we combine the GSMA and Findex data on inactivity, the 2017 dormancy rate in Sub-Saharan Africa shifts from 13 percent of account holders (in Findex) to 49 percent of accounts (combining the two data sets). This adjusted dormancy rate is now roughly equivalent to dormancy rates in India and represents a significant increase from the inferred rate in 2014 of 41 percent (again, based on accounts, not account holders). This adds approximately 129 million dormant accounts back into the global total, raising our developing country dormancy rate sharply back in the direction of the 25 percent mark.

<img class="size-full wp-image-32067 aligncenter" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2018/08/greta-bull-financial-accounts-dormancy-rates-1.png" alt="" width="629" height="255" />

The point of this exercise is not to provide an exact estimate of dormancy rates in Africa, but to demonstrate that we have a pretty serious usage challenge and that it is concentrated in India and Sub-Saharan Africa, where the denominator of new accounts has grown the most. Not coincidentally, they are also the two regions with the highest rates of extreme poverty. India increased access to accounts from 53 to 80 percent of adults from 2014 to 2017, adding 290 million account holders. In Africa, we have inferred that 232 million accounts were added in the same period. If the Africa data are normalized for inactivity, then India and Africa together would account for roughly 77 percent of all people accounts added between 2014 and 2017. But a large portion of them are inactive. It seems intuitive that, with the addition of accounts at this pace, there might be a delay between opening an account and using it, but we will have to wait until the next Findex to properly test this assumption.

CFI is right to point out dormancy as a problem, but it missed a big part of the challenge in its analysis: high dormancy in Sub-Saharan Africa, which barely registers in Findex, and the fact that mobile money accounts are measured differently means it is difficult to compare inactivity rates across regions. But I am not sure this means we should ignore the registered account numbers entirely, as CFI suggests. They are important because they show progress in giving people access to accounts. But activity rates matter, too, and the clear challenge now is to stimulate usage of those accounts in Africa and South Asia. This is a more complex undertaking because it involves behavior changes for new account holders and the testing of different value propositions for providers — and both of these challenges take time to address. But there are hints about how this can be done. GSMA, in its latest <a href="https://www.gsma.com/mobilefordevelopment/wp-content/uploads/2018/05/GSMA_2017_State_of_the_Industry_Report_on_Mobile_Money_Full_Report.pdf">State of the Industry Report on Mobile Money</a>, focused on four factors that are closely associated with high activity rates: a robust agent network, enabling mobile money regulation, a digital account-based model and providers serving as integrated platforms for the wider payments ecosystem. It provides the example of MTN in Ghana, where activity rates went from 7 percent in June 2012 to 73 percent in June 2017. Understanding the factors that created the change at MTN in Ghana will provide valuable insights into what it will take to move inactivity rates, which have been stubbornly sticky in the mobile money industry since 2011.

Beyond overall account dormancy, the CFI report raises interesting questions about important use cases that deserve brief examination — savings, credit and payments.

On savings, it is disappointing that the number of survey respondents in developing countries who reported saving in the past year came down from 53 percent in 2014 to 43 percent in 2017. Unfortunately, Findex doesn’t tell us why this might be happening. While customers not perceiving the value of their accounts is one possible explanation, factors like inflation, the availability of alternatives, economic stagnation or other disruptions could be affecting the amount of money people are able to save. What is encouraging is that more of those who did save used a financial institution: this figure grew from 42 percent in 2014 to 47 percent in 2017.

On credit, I am more sanguine for a couple of reasons. First, we can’t draw any real conclusions from the Findex data. For developing countries, the number of respondents who reported borrowing in the previous year dropped from 47 to 44 percent, which is just outside the margin of error for the sample size and not a particularly strong signal. And Findex may or may not capture data on credit provided via mobile money accounts, depending on whether people consider this a loan, so it is potentially missing some digital credit borrowing. But more to the point, credit is a financial product where more isn’t necessarily better. The main constraint to accessing credit shouldn’t be whether someone has an account. It should be whether they can afford it.

Digital payments are the real story in Findex, and it is no surprise that this number is going up. Many accounts in places like India and Africa were established expressly to facilitate payments. In the developing world, the proportion of respondents who reported sending or receiving a digital payment in the past year went from 32 to 44 percent, and this growth was consistent across all markets. It makes sense. Just think about the way you use your bank account: you might save, and you may or may not have a loan for a house or a car, but you almost certainly make regular payments from your account. A mobile or low-value bank account in many ways mimics a current account. It is a store of value from which payments can be sent and received. You don’t expect to get a return on it, but you might use it to help establish a credit rating.

Payments seem to me to be a foundational product, especially for people with very little money, who may not have enough to save consistently and may not be creditworthy. Comparing payments usage in developing countries to high-income OECD countries puts this issue in perspective. In high-income OECD countries, 92 percent of respondents reported making or receiving a digital payment in the past year. The figure for low income countries was only 26 percent, a gap of 66 percentage points. The usage gaps between OECD countries and low-income countries was less pronounced for both savings and credit (45 and 49 percentage points, respectively). This is primarily because credit and savings products were not as widely used in rich countries as payments: only 56 percent of account holders reported saving in a financial institution in the past year, and only 20 percent borrowed from a financial institution (although this rose to 57 percent when credit cards were counted). The concept of “universal usage” is best applied to payments services rather than the other financial services where customers’ needs are more varied.

<img class="size-full wp-image-32068 aligncenter" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2018/08/greta-bull-usage-gap-oecd-and-low-income-1.png" alt="" width="617" height="365" />

For me, the jury is still out on usage. We have seen massive growth in accounts in the past three years, but dormancy rates have remained stubbornly steady, particularly in markets with rapid account growth. The trick will now be to activate all of those newly opened accounts, and we will have to wait until the 2020 Findex (and perhaps beyond) to understand whether we are simply dealing with a time lag or whether we have a bigger problem on account usage. What I would expect to see is a gradual improvement in activity rates for accounts in India and Sub-Saharan Africa, and payments will be key to that story. Payments are a gateway use case. Over time, they can create a foundation for other use cases to emerge through improved data on customer activity and by creating trust in formal financial services.

But we should not necessarily expect to see other use cases grow in proportion to payments, not least because it takes time to build data trails and the level of trust required for more habitual use of financial services. Nor should we expect it to happen quickly. Financial inclusion, as opposed to just financial access, is and has always been a long-term endeavor.

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Financial Inclusion: Is the Glass Half Empty or Half Full? (Part 2)

Global Findex

The <a href="http://www.smartcampaign.org/">Smart Campaign</a> recently released a paper by digital financial inclusion expert and CFI Fellow John Owens: <a href="http://www.centerforfinancialinclusion.org/publications-a-resources/browse-publications/1036-responsible-digital-credit">Responsible Digital Credit: What does it look like?</a> The paper lays out the variety of digital credit models and, using the <a href="https://www.smartcampaign.org/about/smart-microfinance-and-the-client-protection-principles">Client Protection Principles</a> (CPPs) as a framework, enumerates emerging risks and suggests good practices and mitigating steps that providers, regulators and even clients can take.

The paper is a helpful addition to the Smart Campaign’s work on a number of fronts. First, it has sharpened our ability to distinguish various digital credit models. “Digital credit” has become a hot topic in financial inclusion, but the term is often used without understanding the diversity of credit providers. The paper defines digital credit as “loans that are accessed via a digital channel either online, via a mobile device or via a third-party agent that facilitates digital credit processing remotely.” John provides a helpful taxonomy of the types of providers, ranging from non-bank marketplace P2P lenders, to fintechs that provide tiny mobile loans; to tech giants leveraging their massive data streams to offer consumer loans; and platforms that support SME financing through purchase orders, invoices, receivables, and processes between buyers and sellers along the supply chain. The paper presents the client protection risks inherent in all these digital credit products.

It is important to understand the differences among the business models to be able to identify the best ways for providers to mitigate the risks. For example, responsible underwriting might need to look very different at an e-commerce tech giant like Alibaba versus a mobile loan provider like M-Shwari. The two businesses use different kinds of customer data, have different pre-existing relationships with customers, interface with customers differently, and operate in markets with different levels of development (for example, whether credit bureaus can be relied on). As the Smart Campaign seeks to develop practical guidance for digital credit, this diversity presents a challenge.

The paper was also helpful in validating the seven CPPs as a framework for identifying and pin-pointing client protection risks in a digital world. John proposes one significant change. He writes, “To this list, however, we add an eighth concept: security and fraud protection, which is especially salient for digital financial services.” While on the one hand, the concepts of security and fraud could be housed under the existing Principles “Privacy of Client Data” and “Fair and Respectful Treatment,” <strong>given the importance of data security and fraud protection in a digital world, the Smart Campaign will consider it as a potential addition.</strong>

The paper takes the conversation about responsible digital credit an important step forward. So far, much of industry discussion has been about enumerating risks through research. Now the time is ripe for recommending practices that can be applied in real time by providers, regulators, industry and even clients. <strong>Moving from risk identification to practical guidance is an absolutely necessary next step in making responsible digital credit a reality.</strong> Actually, this process has already begun, in various places. John cites examples of guidance from existing industry associations and regulator groups, as well as the many <a href="http://www.cgap.org/sites/default/files/Focus-Note-Consumer-Protection-in-digital-Credit-Aug-2017.pdf">solutions proposed by CGAP</a>. For example, the Online Lenders Association in the United States has requirements for its members in the areas of advertising and marketing. One such requirement is for disclosure of conditions whenever “trigger” terms such as down payment, APR, variable interest rate, and the like appear. Overall, however John’s paper notes that implementation is still at a nascent stage.

At the end of the paper, John makes recommendations, including a few specific ones for the Smart Campaign. <strong>He strongly endorses the development and implementation of standards of practice that adapt the Client Protection Principles for digital credit. Through the <a href="http://smartcampaign.org/about/fintech-protects-community-of-practice">Fintech Protects Community of Practice</a>, the Smart Campaign and a group of enthusiastic digital lenders are working towards that end.</strong> The community of practice includes both mobile credit providers and tech-enabled financial institutions.

John also notes the value of recognition and certification programs for digital credit providers that meet these standards. The Smart Campaign’s <a href="http://smartcampaign.org/certification/all-about-certification">Certification Program</a>, which has certified over 100 financial service providers serving more than 42 million clients worldwide, is <strong>being extended to recognize client protection achievement for mobile credit providers, with an expected debut in 2019</strong>.

John is personally excited about the potential of new communications technologies such as chatbots to improve consumer protection in digital settings where face-to-face interactions with customers are infrequent or non-existent. He recommends this approach in the paper, and he is developing opportunities to apply digital communication tools. This is promising not only for providers, but also for regulators wishing to strengthen complaint resolution procedures or monitor a market.

As John writes, it will take a village to ensure that digital credit clients are protected with providers, consumer advocates, regulators, donors and investors all working together. The Smart Campaign is delighted to contribute to this effort.

<strong><em>Alex and John led a <a href="http://www.centerforfinancialinclusion.org/events-a-presentations/1034-webinar-responsible-digital-credit">webinar</a> in July 2018 about responsible digital credit and what providers need to do to ensure that their customers are protected and empowered—<a href="http://www.centerforfinancialinclusion.org/events-a-presentations/1034-webinar-responsible-digital-credit">check it out</a>. </em> </strong>

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Roadmap for Responsible Digital Credit—What We're Doing at the Smart Campaign

This webinar features CFI Fellow John Owens and Smart Campaign Senior Director Alex Rizzi. This conversation highlights the risks that consumers of digital credit face, using the Smart Campaign Client Protection Principles as an organizing framework, identify existing best practices and standards for responsible digital credit, and provide relevant recommendations for stakeholders seeking guidance on how to best navigate the intersection of digital financial services and consumer protection issues.

<em>This report is published jointly with the Smart Campaign and was made possible by support from Mastercard Foundation and other partners.</em>

Webinar: Responsible Digital Credit

As digital credit providers have grown exponentially over the past few years, and as digital products and models have proliferated, so too have concerns around consumer protection. In the recently published report, <a href="http://www.centerforfinancialinclusion.org/publications-a-resources/browse-publications/1036-responsible-digital-credit">Responsible Digital Credit</a>, I argue that ensuring that digital credit customers receive responsible treatment requires more than enhanced consumer protection laws and regulations. It also requires strong commitment from the digital credit industry. Finally, it needs consumers who are empowered to play a more proactive role in managing their digital credit responsibly.

Over the past year, I have interviewed digital credit industry associations, credit providers and their third-party data analytic providers, regulators, policy makers, and various consumer protection leaders. Many of these groups are working to develop responsible digital lending principles. With their input, my report proposes a guiding framework for responsible digital lending.  The framework uses the Smart Campaign <a href="https://www.smartcampaign.org/about/smart-microfinance-and-the-client-protection-principles">Client Protection Principles</a> as a basis for grouping the issues. In addition, I propose an eighth principle: security and fraud protection.

Digital credit, and especially the use of mobile phones, significantly alters interactions between borrowers and lenders. Lenders utilizing the mobile channel to advertise, acquire and transact with customers must pay particular attention to the limitations of mobile interaction with customers and follow industry <a href="http://onlinelendersalliance.org/wp-content/uploads/2016/03/Best-Practices-2016-1.pdf">mobile best practices</a>. While many of the standard consumer protection practices continue to apply, new concerns, or more accurately, new faces on older concerns, have emerged. In this post, I want to highlight several of the considerations I found most important and relevant for the digital lending industry.
<h2><strong>Responsible Algorithms</strong></h2>
Many digital credit models rely on algorithms to process data about clients and make credit decisions. Because most lenders consider their algorithms proprietary, it is difficult for observers to know on what basis credit decisions are actually made. This opaque situation raises the spectre of discrimination. Attributes that are considered inappropriate bases for differentiation, such as religion, language, gender, or ethnic origin, are areas of particular concern with regard to algorithm-based lending practices. As highlighted by a Smart Campaign <a href="http://www.centerforfinancialinclusion.org/publications-a-resources/browse-publications/916-smart-brief-tiny-loans-big-questions">report</a>, while credit offers may differ based on risk analysis, such differentiation should be consistently applied, stated in advance, and made with the goal of benefitting clients. To prevent discriminatory digital credit practices, some recommendations include:
<ul>
 	<li><a href="https://www.whitecase.com/publications/insight/algorithms-and-bias-what-lenders-need-know"><strong>Pretest, test and retest for potential bias</strong></a><strong>.</strong> Digital credit providers and third-party data analytics providers should continuously monitor the outcomes of their algorithmic programs to identify potential problems. Such testing could involve running scenarios to identify unwanted outcomes and developing and building controls that prevent adverse outcomes.</li>
 	<li><a href="http://www.ijmo.org/papers/43-A10212.pdf"><strong>Document the rationale for algorithmic features</strong></a><strong>.</strong> Digital credit providers should be able to provide visualization and a decision tree for the factors their algorithms analyze, as well as the justification for relying on these factors. The rationale should address how borrower debt capacity is assessed, given the importance of this concept in traditional underwriting.</li>
 	<li><strong>Independent review</strong> of companies' proposed data sets and/or algorithms.</li>
</ul>
A self-regulatory approach could be used to develop best practices guidelines for data inputs and the development of nondiscriminatory artificial intelligence systems, following the model that has been successful for the Payment Card Industry Security Standards Council.
<h2><strong>Indebtedness Monitoring</strong></h2>
Because digital lending is often based on non-traditional underwriting criteria, to prevent over-indebtedness among digital borrowers it may be relatively more important to monitor outcomes at the portfolio level. Some of the ways to do this include:
<ul>
 	<li><strong>Avoidance of debt traps</strong> by ensuring that clients are not forced into automated repeat loans.</li>
 	<li><strong><a href="http://www.responsiblebusinesslending.org/">Responsible credit reporting</a></strong> – Better compliance with reporting strengthens markets and leads to better client protection practices.</li>
 	<li><strong><a href="http://www.centerforfinancialinclusion.org/storage/documents/Smart_Brief_Tiny_Loans_Big_Questions_Final_092617.pdf">Monitoring digital credit provider’s portfolio quality</a></strong> – Industry benchmarks for portfolio quality can help to advance the understanding of risks and avoid business models that rely for their success on high default rates.</li>
</ul>
<h2><strong>Digital Transparency </strong></h2>
Digital credit platforms allow for 24/7 communications with clients that, if harnessed properly, can assist them with immediate technical support, remind them about upcoming payments and even identify counselors or resources for clients in financial stress. However, when communication is totally digital, there are heightened concerns about ensuring that clients really know what they are signing up for. Disclosure must lead to client understanding. Borrower disclosure standards should address:
<ul>
 	<li>Standards for <strong>honest advertising</strong> and penalties for misleading marketing materials of credit products. Furthermore, providers should advertise the name of the financial regulator they report to in all advertising materials.</li>
 	<li><strong>Readability</strong> and format – Disclosures need to be easy to comprehend, available in the customer’s local language, and provided in print and digital formats.</li>
 	<li><strong>Comparative tools</strong> – Standard summary disclosure documents would allow borrowers to compare credit offers, both digital and traditional.</li>
 	<li><strong>Adequate notice periods</strong> – Consumers should be notified in advance of changes to interest rates, fees or terms and conditions.</li>
</ul>
A somewhat different but related and relevant concern, often overlooked in this context, is the vulnerability of individual investors who put their money into pure peer-to-peer (P2P) lending platforms. Protections need to be extended to them as well, with a focus on ensuring that they receive the information they need to evaluate risks and that they have recourse channels when something goes amiss.
<h2><strong>Data Privacy and Usage Standards</strong></h2>
While many regulators and most industry groups agree that it is important to protect the confidentiality and security of customers’ information, data use and the level of disclosure about its use are challenging topics. In the <a href="http://ec.europa.eu/justice/data-protection/reform/index_en.htm">EU</a> and in countries such as <a href="https://www.pc.gov.au/inquiries/completed/data-access/thedraft">Australia</a>, regulators are enacting rules mandating that individuals be notified about the use of their personal data and allowed to opt out. Opt-out rules should be considered as a potential requirement for all digital credit providers, especially in markets where mobile push-marketing has become problematic.

Over the next several years it will be important for laws or regulations to be put in place to protect consumer data privacy and guide information sharing. The rules need to:
<ul>
 	<li>Provide for informed consent, such that customers explicitly permit electronic data collection prior to its collection and use, and are given the option to consent or not.</li>
 	<li>Require providers to have a clear data collection and handling policy which limits the amount of data collected as well as the timeframe it is stored.</li>
 	<li>Inform clients about their data trails and credit histories, including the ability to ensure accuracy and correct for any errors or discrepancies.</li>
 	<li>Give regulators the power to discipline providers who repeatedly allow personal data to be misused.</li>
</ul>
<h2><strong>Fraud Prevention and Security </strong></h2>
New security vulnerabilities arising from digital credit strongly point to fraud and cyber-security as consumer protection concerns. It is increasingly urgent for digital credit providers to adopt standard security compliance measures and then to regularly test and update them. Providers must also be responsible for ensuring that the third-parties they use, including lead generators, brokers, agents, and data analytics providers, also have adequate security in place. Ultimately, providers need to be responsible for the actions of their third-parties (e.g., agents, contractors, lead generators, brokers and collectors).

Consumers should be made aware of the potential for fraud and encouraged to report suspected fraud cases or security breaches. Consumer awareness campaigns on the most common incidents of fraud (via the internet, SMS alerts, signage at agent kiosks, etc.) can help with this.

While the recommendations just listed do not apply in all markets, they do point to the urgent need for regulators, industry bodies, individual providers and consumers to work together to construct the ground rules for responsible digital credit that will ensure that consumers are adequately protected.

<em>Editor's Note: This research was made possible by support from Mastercard Foundation and other partners.</em>

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A Framework for Responsible Digital Credit

Webinar: Demystifying Digital Lending