Digital credit has been on the scene in Cote d’Ivoire since 2018, but until last year, little was known about how digital credit is used in the country and what risks it presents to users. In 2022, as part of the WAEMU DFS Consumer Protection Lab, CGAP conducted a nationally representative phone survey with digital borrowers in collaboration with the Observatory for the Quality of Financial Services (OQSF) and Horus Development Finance. The survey told us much about who uses digital credit in Cote d’Ivoire, and what the opportunities and challenges experienced by users are.
with three-quarters of users re-paying their digital loans late, which shows that the product is not designed appropriately or provided to the right people.
Who uses digital credit?
Digital credit in Cote d’Ivoire is a nascent market with just 14% of mobile money users having digitally borrowed in the past 12 months. Users are predominantly urban men. Ivorian women are even more of a minority among digital credit users (27%) than what we saw in Tanzania (36%) and Kenya (45%) in 2017 when digital credit was in its early days in each country. As in other countries we have researched over the years, digital borrowers also tend to be young and educated.
What opportunities does digital credit provide to Ivorians?
In a country where less than 8% of adults have borrowed from a formal source, as per the Global Findex 2021, digital credit presents an important opportunity for many Ivorians to borrow formally for the first time. Accordingly, the vast majority (over 75%) of digital credit users are first-time users of formal credit. The Ivorians interviewed seemed happy with their digital credit experience – 79% rated their experience as positive, especially valuing the speediness of the process. While these loans are mostly comparable to “consumption credit” in terms of their size and primary purpose, they are also used for business purposes. This phenomenon can also be observed in other countries where CGAP has undertaken digital credit national surveys such as Tanzania and Kenya. But, there is more to the picture.
For Ivorians, the potential risks of digital credit are as significant as the opportunities
Three in four users surveyed signaled that they have faced some challenges using digital credit. For example, they may not have understood the repayment date or the cost structure, or they may have had a network interruption when repaying the loan. Further, 78% of digital borrowers repaid their loans late and almost half had difficulties gathering the money needed to repay their loans, which is probably the most worrisome finding. Similar surveys conducted in 2017 in Kenya and Tanzania also showed concerningly high rates of late repayment (47% and 56%, respectively), but these were still lower than what we found in Cote d’Ivoire. It would be interesting to find out whether the speediness of the application and disbursal process that is so valued by 72% of Ivorian customers is, in fact, too speedy – especially when it comes to digital credit and vulnerable customer segments. A few other data points from the Cote d’Ivoire survey are concerning: 15% of digital borrowers took out credit “just to try it out” (the third most common reason among respondents), and borrowers in the bottom monthly income bracket (below 248 USD) were more likely to repay late than others.
The above data is concerning for several reasons. First, it shows that there may be an issue when it comes to ensuring that customers understand the terms and conditions of these loans, especially if this is the first time they’ve borrowed formally. Among those who repaid late, 63% faced at least one transparency issue, 57% reported that they did not understand when to repay, and close to one-third paid unexpected fees. Interestingly, we did not find any major differences between women and men regarding the nature of the risks they faced.
Second, while it is difficult to predict with limited evidence, there could be a risk of debt stress or even over-indebtedness down the road for many Ivorian digital borrowers. 
One in five users has taken out more than five loans, and 14% have had difficulties repaying multiple loans at the same time. In several cases, borrowers have had to use their savings to repay, and 8% have reduced their food purchases, a phenomenon we also witnessed in Tanzania and Kenya (9% and 20%of respondents, respectively).
Further study and appropriate action will be required for digital credit to reach its positive potential
While customers mention various reasons for not repaying their loans in time, such as negligence, forgetfulness, or lack of planning – and to a lesser extent economic difficulties and medical expenses – it is critical to conduct further research to identify the root causes of late repayment and take appropriate action. Authorities need to actively monitor the digital credit market, for example by conducting periodic follow-up phone surveys to identify trends, or using other market monitoring tools to obtain complementary quantitative and quality information.
Therefore, together with one key provider and in collaboration with the OQSF, CGAP will conduct a series of focus groups throughout Cote d’Ivoire to inform key actors in the digital finance ecosystem about the reasons behind such low rates of repayments. Authorities and industry associations can also analyze granular transactional digital credit data to identify whether certain types of loans (e.g., first-time loans, loans granted at certain times of the day, loans under a certain value) are more prone to being defaulted or repaid late (like what was observed in Tanzania).
Ultimately, many different actors in the digital finance ecosystem will need to act, and soon, to ensure positive outcomes for digital credit users in the future. For example, regulatory authorities may require adjusting rules related to “non-performing loans” recording with the credit bureau (e.g., waiving the requirement for negative reporting of loans under a certain threshold, or adding a definition of delinquency that accounts for the short-term nature of digital loans), and digital credit providers may need to further simplify their key terms, disclose them prominently and in a timely manner, and ensure that customers fully understand them. They could also design and test new ways to remind users to repay their loans. Consumer associations may also play a role in informing customers on some of the risks associated with digital credit and building their digital literacy. Ideally, all these actors should work collaboratively, since they all bring a legitimate perspective on what responsible digital credit could look like.
More information is available on the digital credit survey as well as on a broader DFS consumer risks survey.
