Tiny Loans, Big Questions: Client Protection in Mobile Consumer Credit

In this Brief, the Smart Campaign examines a mobile product that has generated both significant scale and a certain amount of controversy: the very small instant consumer loans that have ballooned from 11 deployments in 2011, to 52 in 2016, with a particular concentration in East Africa. In just a few years, through models such as M-Shwari, M-Pawa, Tala and Airtel Money, tens of millions of people have borrowed tiny amounts over their phones. These services represent an enormous increase in formal financial inclusion. They address a fundamental consumer need previously unavailable to lower income people from the formal financial system: the need for very short term money management tools to cope with income and expense volatility. While they are in many ways a boon, they also contain and in some cases heighten risks for their users.

This Brief enumerates and discusses emerging consumer risks posed by these products, using the Client Protection Principles (CPPs) as an organizing framework. The Smart Campaign hopes and intends that the process of examining consumer risks with the CPPs as a framework will assist participants in the mobile financial sector to articulate and build a consensus about responsible practices, though this framework should not limit the discussion.

It further details and summarizes the state of evidence and knowledge around client protection for mobile credit, with recommendations for improvement. The evidence stems largely from three assessments conducted with the Smart Campaign of mobile lenders, as well as research conducted by CGAP, MicroSave and the International Telecommunications Union (ITU), among others.