Digital credit has been instrumental in granting formal credit in ways that were not conceivable a decade ago. It has provided individuals with the tools to manage their day-to-day needs and working capital for small enterprises. Survey data reveals that over six million Kenyans have borrowed at least one digital loan. Beyond these daily use-cases, digital credit is increasingly used to finance non- routine needs such as school fees and pay for healthcare. However, while there are any bright spots, expanding access is just the first step towards realising the potential of credit to create long-term sustainable value.
The expansion of digital credit and the proliferation of digital lenders has increased attention to wider consumer protection issues. Pricing continues to be a concern, even in the presence of market infrastructure that mitigates part of the risk inherent in lending decisions. Access to infrastructure, such as credit information sharing, is disparate across lenders. Data privacy and ownership is starting to emerge as a concern. The absence of an overarching regulatory framework means anyone can lend. When credit is easy to access without safeguards, cases of debt stress begin to surface. Inevitably, there have been growing concerns to regulate the sector with concerns that some of the gains made are being eroded. However, regulation is frequently misrepresented as simply being about restricting what market actors can do. Often, carefully crafted regulation can actually support effective market function.
Research and analysis can play a role in generating a clear case for policy action, providing ex post evidence for success or the need for change in a regulatory area.