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As a financial inclusion tool, mobile credit can create access for consumers with no formal financial footprint. The Smart Campaign recently released a report that examined some of the issues and opportunities in creating financial inclusion in marginalized economies. It can help with the problems of income and expense fluctuation, and smooth consumption.

Nano-loans have generated both significant scale and a certain amount of controversy. These very small, instant consumer loans have ballooned in just a few years, through models such as M-Shwari, M-Pawa, Tala and Airtel Money, tens of millions of people have borrowed tiny amounts over their phones.

Nano-loans represent an enormous increase in formal financial inclusion. They address a fundamental consumer need previously unavailable to lower income people from the formal financial system: the need for very short-term money management tools to cope with income and expense volatility. While they are in many ways a boon, they also contain, and in some cases heighten risks, for consumers.

Mobile credit speeds approval and access to funds over the microcredit solutions that have become normalized in many areas, but it carries some risks in the form of aggressive sales practices that may mismatch consumers and products.

The shortened credit approval process may create over-indebtedness for some borrowers that can damage both the lender and the customer. Consumer education may be necessary to be sure that all the limits and requirements as well as pricing are well understood and fit the user’s needs. Digital credit carries with it the concerns of data privacy and the speed with which some programs have moved forward has created system weaknesses that could create data security questions.

Many micro- and nano-borrowers are relatively comfortable with the digital device technology, but still prefer some personal interaction to confirm legitimacy and create relationships. It is also key to dispute or complaint resolution to have a personal connection to a lender. The Smart Campaign will be examining all of the facets of this new financial services channel, and working with partners, providers and users to develop best practices, standards and consensus in the space.

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