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FSD Work on Digital Credit & Complaints Monitoring Summit

This highlights the market conduct and practices of digital credit in Kenya, the growth of digital borrowing, consumer protection issues, data privacy concerns, and the monitoring of financial consumer protection via social media.

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FSD Work on Digital Credit & Complaints Monitoring Summit

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  1. Highlights of fsd work on digital credit & complaints monitoring Summit on responsible finance in action/Nairobi/June/2019 Francis Gwer Welcome

  2. Project # 1: market conduct and practices of digital credit

  3. Over 6m Kenyans have borrowed at least 1 digital loanUsage of non-regulated digital credit has grown from 0.6% in 2016 to 8.3% in 2019High uptake but less clarity on the size and composition of the supply-sideNew entrants from outside the prudentially regulated sectors have emerged . Growth of digital borrowing (%) NB: Formal borrowing: includes digital borrowing as well

  4. Proliferation of lenders has increased attention to wider consumer protection issues Loan defaulters from credit types: FinAccess 2019 Levels of debt stress(%): FinAccess 2019 Data privacy and ownership is starting to emerge as a concern: (mining, storing and sharing consumers’ digital footprints) Emerging signs of debt-stress: mobile loans rank second in the proportion of defaulters by loan types Nothing like a small debt: law permits listing non-performing loans with CRBs yet only 30% of Kenyans are aware of CRBs Long-running debates on cost

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

  6. 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

  7. Belling the cat Understanding market conduct & practices of providers Step 2 • Download digital credit Apps from both Google and iOS stores • (Total of 110 Apps) Step 1 9 research assistants: 2 never borrowed 4 borrowed & repaid 3 with default histories • Register to use the loan apps (64 successful) • Check for data & app permissions requested • Request for credit limit • (39 lenders, max amt 16,000) Step 3 Step 4 • 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 Step 5 • Check your credit history from all three credit reference bureaus • (54 reports)

  8. A market that is easy to enter and exit.. Number of apps as at September 2018 Number of apps removed as at April 2019 65 47 Number of new apps – April 2019 110 $10,894 Payment – 4520$ Payment – 6700$

  9. Even for unscrupulous ‘lenders’ Require the payment of a registration fee Offering savings services when you are not a deposit-taking institution is illegal Mimic mainstream and established lenders

  10. Use of data is far-reaching 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. 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

  11. Default history vs successful borrowing • 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 • 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)

  12. Pricing remains high Lowest APR Bank lenders have lower APRs than non-bank lenders. Median APR For both bank and non- banks 49% Highest APR (Issued by a non-bank lender) 240% 1685%

  13. Project # 2: monitoring financial consumer protection via social media

  14. 2 experiments in 1 Process August to November 2018 Creating Value through Financial Inclusion Using CitiBeats AI text analysis platform to track and analyze consumer protection relevant tweets FSD Kenya. 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 Monitor and analyze Track Curate Launch CitiBeats Pesastory 1 2 3 4 Launched @Pesastory Twitter handle to initiate conversations with Kenyans on their experiences with consumer protection issues. Flagged tweets relevant to each topic over 3 months. Not all tweets were relevant and we periodically added keywords to make filters more effective Tracked every tweet to 29 financial institutions and sorted them into 10 consumer protection topics by keywords Curate threads of tweets on related topics to demonstrate common experiences & challenges.

  15. 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

  16. Observation 2(1): analysis is useful in detecting spikes in customer concerns Sample Tweets sent by Equity customers on 2nd Nov On 2nd Nov Platform showed 65 tweets sent to EB on customer service

  17. Observation 2(2): monitoring trends over time Visual representation of how the volume of tweets on CP issues change over time for providers Spike in Ecobank appeared to relate to access to accounts by customers • 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

  18. Reflections: what do the results mean? • 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 It's useful for you to write something special • 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

  19. Creating Value through Financial Inclusion FSD Kenya. Thank You For your time! FSD Kenya | Creating value through financial inclusion 3rd Floor, 9-Riverside, Riverside Drive P.O. Box 11353, 00100 Nairobi, Kenya|  Telephone: +254 20 513 7300 Website: www.fsdkenya.org |

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