Financial inclusion: Sandbox set up to help fintechs fix finance in rural Africa
A new generation of digital products has slashed the cost of remittances and helped the unbanked meet short-term household or business liquidity needs, but there has been a downside.
Fintechs have helped make financial services available to people that banks have long struggled to reach, but this has come at a price.
Default rates among digital borrowers in Tanzania, for example, have reached 31% and in Kenya 12%, according to a survey by the Consultative Group to Assist the Poor (CGAP), a global partnership of more than 30 development organizations housed within the World Bank.
This is making a bad situation in Africa considerably worse.
Loans that are not repaid get the borrower blacklisted, blocking people from taking loans on more manageable terms. Instead of being a stepping stone into the formal banking system, digital credit has become another obstacle blocking the path into it.
Rupert Scofield, president, CEO and co-founder of Finca International – a non-profit, microfinance organization – says: “Fintechs have taken an increased interest in microfinance in recent years. Some have introduced new products that offer instant loans, but these often come with very high interest rates.