There is no doubt that mobile money platforms have created opportunities for many unbanked people to participate in the financial system and have contributed to the vision of a lean cash economy. In addition, mobile money services are scaling up to provide a much needed service to Ghanaians in that they provide essential digital finance service and create a pathway for millions of users to access non-loan loans. instant guarantees.
A mobile money loan service is typically a loan given to customers through their mobile money wallets. It is not guaranteed and the approval and disbursement processes take place within minutes. Since mobile network operators cannot, according to regulations, provide this service normally, most mobile network operators offer mobile money loans in collaboration with loan providers such as QWIKLOAN, Xpressloan, Ahomkaloan , etc.
In addition to loans offered by mobile network operators through their partner financial service providers, users can also access digital microcredit through mobile applications such as FIDO and Paylater, etc. Typically, the user dials a short code that opens a menu; the customer must select financial services after following a number of prompts, accept the terms and conditions of the service and enter their access code. The final step will be the communication of a decision on whether or not to approve the loan application. The loan approval processes are done automatically without any human intervention. The decision is made based on a number of factors such as repayment history, number of years as a mobile phone user, volume of mobile money transactions, type of device used by the client (smartphone or non-smartphone), the volume of airtime and the volume of Internet data consumed over time.
Loan amounts approved vary from client to client, however, for new loan applicants approval is given for GH ¢ 100 ($ 20), and this loan amount may increase over time as depending on loan decision factors. Currently, mobile loan interest rates are pegged at a regulatory lending rate of 6.90% over 30 days regardless of the amount; this mandate is uniform for all providers. The process ends with funds instantly credited to the customer’s mobile wallet and can be spent or used for payments. Only one loan transaction is allowed at any time; however, some users circumvent this one loan limit at a time by registering multiple cell phone numbers using different credentials. After 30 days, the system automatically deducts principal and interest from funds available in the customer’s mobile wallet. If there are no funds in the account, the loan automatically defaults and a flat-rate punitive rate of 12.5% is applied to the loan and interest until the funds are paid. However, if the loan is past due for six months, the loan provider can write it off internally as bad debt.
The main challenge facing mobile loan services is the high number of defaults, currently estimated at 20%. There are several reasons for this high rate of defaults, including lack of funds, forgetting to deposit funds in the mobile money wallet on the repayment due date, short loan term, loan rates. high interest and some people feel it’s “free money” so they don’t have to pay and use multiple credentials that become untraceable. Since the loans are unsecured, there is no action to recover them except to rely on moral persuasion and the threat of refusal of future loans. There are many suggested solutions to these problems; however, the most compelling on the table is to ensure that only one piece of ID is used for registering mobile money and to strengthen the credit bureau mechanism, so that information on defaulters are disseminated in other areas such as renting a house or carrying out other financial transactions; this will increase the cost of default and encourage on-time payments. Another solution is to offer an option of staggered repayment periods instead of a single lump sum which is currently the case. In East Africa, some mobile money lending service providers have a guarantee scheme where a guarantor offers to repay when the loan recipient does not pay on time.
In conclusion, the mobile money lending service creates opportunities for the unbanked people in Ghana, who are the majority, to access credit. However, this service provides strong evidence of how financial technology innovations can lead to financial inclusion.
Kwami Ahiabenu II, is a consultant in technological innovations