Access and Usage of Digital Consumer Credit by the Youths in Ghana: A Case Study of QwikLoan Product
The wave of digital transformation is catching up fast with service delivery within the financial sector in Ghana and by extension Africa. Decades ago, to make financial transactions, customers would have to walk to the banking hall where they are likely to join a long queue of others waiting for their turn to be served. A customer could only complete loan application forms or access credit through an analogue process. Today, much of that has changed. Financial Services Providers are capitalizing on the high Smartphone penetration, improved access to internet and digital literacy of their customers and the robust and adaptive regulatory framework to remodel service delivery and customer experience. This innovation in service delivery channel is bringing access to financial service to the unbanked including the youths closer.
Digital Financial Service is a broad range of financial services – credit, savings, payment and insurance – delivered and accessed through digital channels. The digital financial services (DFS) concept includes Mobile Financial Services (MFS).1 Apart from providing access, digital finance helping customers build transactional data and credit history.
Ghana is one of Africa’s largest mobile markets, with about 34.57 million subscribers and a penetration rate of 119 percent.2 This was driven mainly by the government’s decision to reduce import duties on mobile phones from 20% to 10%. Before this tax came into force, import duty on mobile phone sets was removed in 2008 to make prices cheaper. However this did not yield the intended results. Rather, prices of mobile phone sets increased, so government reintroduce the import duty.3 Telecommunication companies have also been aggressive at widening network coverage.
A study by Akanferi et al (2014) showed that 99% of Ghanaian youths have access to mobile phones. Indicative of how high patronage and usage of mobile phones is among the youths of Ghana.4 The youth, classified as person between 15 to 35 years old, constitute about a third of the population of Ghana.5 They are often excluded from access to formal financial services for reasons such as legal restrictions, high transaction costs and negative stereotypes about youth.6 The combination of poor financial literacy and lack of access to financial services poses a substantial risk to the economic future and financial stability of youth.7
So it was good news when Mobile Financial Services came to the fore. It presented an opportunity to extend access to financial services to the youths of Ghana drawing on the fact that most of them own mobile phones. Mobile financial services cover a wide range of product including mobile money and mobile credit which are accessed through USSD protocol.
In Ghana, MTN Mobile Financial Services is the market leader with a record 11.6 million registered mobile money accounts which currently represents a 93.9% market share of the mobile money float.8 Among the youths, one of the most popular products offered by MTN Mobile Financial Services is “QwikLoan” an example of digital credit product. Launched in 2017, the product is a partnership between MTN Ghana and Afb Ghana to provide convenience to MTN account holders in times of need to enhance their business. Customers can access instant and collateral free digital credit of up GHS 1,000 ($177) at any time for any purpose through their mobile phones. Frequent use of MTN Mobile Money wallet and a demonstrated commitment to repaying loans are essential in accessing more loans. A customer must be 18 years old and above to access this product. The tenure for this loan is 30 days and costs 6.9%. The QwikLoan product runs on the books of Afb Ghana (now Letshego). Since 2017, the company has served 2 million customers and has cumulatively disbursed about GH￠1.5billion or US$300million for the 30-day facility.9
With this ease of access to digital consumer credit, it would be interesting to know how digital credit portfolios are performing, especially QwickLoan. Even though there is no public data available, media reports suggest that all is not well. This may not be far from the truth in a country where the financial sector is faced with high non-performing loans problem. According to the Central Bank, although the non-performing loans ratio has declined from 23.5% in April 2018 to 18.9% in April 2019, it remains high and points to the industry’s exposure to credit risk.10 it’s worth noting that this decrease was a result of the banking sector clean-up.
In East Africa, lessons emerging from the easy access to digital consumer credit show a looming debt-trap and high non-performing loan problem. A review of millions of loans and two large-scale customer surveys of digital borrowers reveal troubling issues with transparency and responsible lending that contribute to high delinquency rates, harming both consumers’ credit histories and lenders' business profits.11 Young, urban men are the largest borrowers in this context.
It’s a fact that the youth represent majority of the Ghanaian population and majority of them own mobile phones. It is also highly possible that majority of mobile money accounts holders are within the youth age bracket. A study by Apior and Suzuki (2018) showed that the average age of money users in Ghana is 32 years old while that of non-users is 35 years old.12
So with this trend, this article attempts to understand how youths were accessing and using digital credit in Ghana. It sought to know whether the youths have MTN mobile money accounts, use digital credit (in this case the MTN QwikLoan product), how often they borrow, and how they pay back their credit. An online survey tool was used to reach out to several online youth groups. 280 people responded to the survey. All 280 respondents are between 18 to 35 years old. They accessed and completed questionnaire on their mobile phones. Data was analysed using mixed method.
Out of the 280 respondents, 35% were females whiles 65% were males. This gender disparity was only because fewer female responded to the survey. All genders had equal opportunity to participate in the survey. It is therefore difficult to infer, that it is related to the inequality in the ownership of mobile phones. This is not to say that the problem doesn’t exist. Women remain 10% less likely than men to own a mobile phone in low- and middle-income countries, and 23% less likely than men to use mobile internet.13
Out of the 280 respondents, 269 respondents representing 96% confirm having MTN mobile money accounts while 4% confirm not having. Of the 269 that have mobile money accounts, only 80 of them representing 30% patronise the QwikLoan product. Of this figure, 40 respondents representing 50% borrow every month while the remaining 50% borrow bimonthly. Averagely, 38% of the respondents that patronises the QwickLoan product borrow GHS 150, 25% borrow GHS 400 whiles 37% borrow amount above GHS 500. Most of them use the borrowed funds for personal upkeep. 30 out of the 80 that patronize the QwikLoan product, representing 38%, have ever defaulted on paying their loans. The reasons for defaulting include forgetfulness and business downturn. Those who were on time with their payments cited the need for good credit history as a reason. 60 out of the 80 that borrow from MTN Mobile Financial Services, representing 75%, borrow from other sources to repay their QwikLoans. They borrow from friends, family and mobile agents - usually at a cost - to repay their QwikLoans. Right then after, they borrow again from MTN mobile financial service to repay these individuals they had borrowed from to repay their QwikLoans. It is interesting to note that 70 out the 80, representing 88% of those that patronise the QwikLoan product consider the product to be a part of their cashflow.
From the above data there’s a tendency of debt recycling and youth over dependence on debt for self-sustenance. Ultimately, this could lead to a debt-trap which could have dire consequences for the youth and financial sector. The youths in Ghana have limitless access to digital credit. The only issue here is, how responsibly are they using it? It is comforting that, majority of the youth surveyed do not borrow. However, they must be educated on responsible borrowing. Financial literacy is an important element of financial inclusion that must not be overlooked by Mobile Financial Service providers in their service delivery. Fineazy is an AI-powered chatbot with tailored financial literacy content that can be deployed at scale by Mobile Financial Service providers to educate the youth customer base while they focus on their core business of financial services delivery.
The problem of lack of insurance cover for instant digital loans must also be addressed. Currently insurance companies in Ghana, due to a lack of appreciation of the processing and disbursement of digital credit have no products that provide loan default cover. Mobile Financial Service companies must find ways to make insurance companies understand the business case of providing digital credit insurance cover.
In summary, digital credit is easily accessible to the youth in Ghana. However, there’s the need to teach them to exercise responsibility in its usage. Financial literacy is critical in this regards. Regulators and services providers alike must work to develop insurance products to cover digital credit default. Digital identity must also be improved to enable the tracking of borrowers.