Since the launch of M-Shwari in 2012, the number of digital lenders and loans disbursed has grown substantially. Advances in credit scoring, few regulatory barriers and the widespread use of mobile phones and mobile money have enabled growth of the digital lending industry, giving borrowers a quick and convenient option for credit.
However, industry practices around pricing, marketing and debt collection have raised concerns. In addition, the widespread negative listing of digital borrowers in credit reference bureaus points to the difficulty many borrowers have in repaying digital loans.
The objective of this Focus Note is to contribute to this discussion by drawing on nationally representative survey data to contextualise the use of digital loans in the broader credit landscape. Throughout the Note, digital loans are used a shorthand for loans obtained via mobile banking (for example, M-Shwari and KCB-Mpesa) or a smartphone app (for example, Branch and Tala). Airtime advances and other forms of digital borrowing (such as Fuliza) are not included in the definition of digital borrowing.