While digital lending and more broad digital banking services can improve financial inclusion in sub-Saharan Africa and other regions such as Southeast Asia, there has also been some criticism of predatory lending terms and extremely high interest rates, leading Kenya and other nations to more strictly regulate the industry. Studies have also found there can be a gender gap when looking at access to mobile money and other digital banking services, with women still being less likely to have a bank account or own a phone than men.

Micro Loans and COVID-19 in sub-Saharan Africa

With mobile-based lending already on the rise in countries such as Kenya and Nigeria, it is expected that the economic turmoil surrounding COVID-19 will increase demand for loans. GeoPoll’s study on the financial impact of coronavirus in sub-Saharan Africa found that over three-quarters of workers had experienced a decrease in income due to COVID-19, and that the effects of the virus are most pronounced amongst informal workers and those earning lower incomes.

The study also found that nearly half of respondents had taken out a loan specifically to cover coronavirus-related expenses, which could result in negative economic impacts if people are unable to repay those loans. Concern over paying expenses due to COVID-19 was high for all respondents, with those in the informal economy more likely to be using savings and loans from banks or friends and family to cover expenses during the pandemic.

Loan Usage and Amount 

As part of the same financial study, GeoPoll collected additional information on loan usage in Kenya, Nigeria, Mozambique, and South Africa. Looking at all four countries we found that about half of all respondents are currently paying off a loan, with this number being highest in Kenya, at 68%, and lowest in South Africa, at 39%. This is likely due to Kenya being at the forefront of mobile-based lending and financial services for the past decade and is in line with the Digital Lending Association of Kenya’s findings.

The older age groups are more likely to be paying off loans than those aged 18-25, of which 42% state they are paying off loans, compared to 59% of those ages 36 and above. We also find that males are more likely than females to be paying off loans, with 54% of males and 48% of females across all countries paying off loans. Looking at loan usage by income level and employment type, we find that informal workers are less likely than formal workers to be paying off loans. This could be due to the fact that informal workers still often lack access to financial services, even with the proliferation of digital lending firms.

Those who reported that they are paying off a loan were asked how much they still owe for all outstanding loans in an open-ended question, which was then coded and put into ranges for each country approximating $0-50, $51-100, $101-250, $251-500, $501-1000, $1001-2000, $2001-5000, and above $5000 USD. From these ranges we found that almost 70% had loan amounts of up to $500, while just 10% had outstanding loans in amounts equivalent of $2000 USD or higher. The most common loan amount was $101-250, which 21% of those who have outstanding loans fell into.

Loan amounts varied by age, with the younger age groups reporting smaller outstanding loan amounts; 49% of those age 18-25 owed up to $100, compared to 34% of those aged 26-35 and 16% of those aged 36 and older. Given that those aged 18-25 were also found less likely to be responsible for paying expenses and more likely to be students or unemployed than older groups, this demonstrates that the youth may not yet need large loans, and when they do take out loans they are doing so in relatively small amounts.

Females also take out loans in lower amounts, with 36% of females taking out loans up to $100, compared to 26% of males. The most common loan range for females was $0-50, at 22%, while the most common range for males was $101-250, at 23%. South Africans are more likely to take out loans in higher amounts; While only 27% of respondents in South Africa owe less than $250, 58% of those in Kenya, 61% of those in Mozambique, and 55% of those in Nigeria fall into the same bracket. Those in Mozambique are most likely to take out loans up to $50, with almost a quarter of respondents reporting that range.

Data on Mobile Lending and Micro Loans

GeoPoll has conducted studies in over 80 countries around the globe and our team of research experts can help design and implement custom financial studies through our remote research modes, which include CATI voice calls, SMS and mobile web surveys. To collect your own data on digital lending, microfinance, financial inclusion, and related topics in sub-Saharan Africa, Asia, or Latin America, contact us today. 

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The US Agency for International Development (USAID) recognizes this problem, and their Development Credit Authority (DCA) helps fill this financing gap in emerging markets by taking on some of the banks’ risk and by partially guaranteeing loans for borrowers.  Since its creation in 1999, DCA has made $3.1 billion dollars of credit available to borrowers across 71 countries, and has only seen a 1.85% default rate on these guaranteed loans.  Many borrowers who banks previously classified as unqualified for a loan have gone on to get larger loans without USAID’s guarantee, and seeing the success of USAID guaranteed borrowers and industries makes banks more likely to make similar loans to those not partnered with USAID.

To identify those in need of loans and the reasons that borrowers may be apprehensive about requesting loans, USAID DCA conducts research in the regions they work in. But, as with many other industries, face-to-face surveys can be slow and costly, so DCA recently partnered with GeoPoll to conduct surveys through text message in Nigeria. Over two days in May 2014, the DCA worked with GeoPoll to administer more than 750 mobile phone surveys across 15 targeted states in Nigeria to ask agriculture- related businesses about access to finance. Participants were screened to identify those who worked in agriculture and had the authority to take out a loan for their work, which allowed DCA to gather information from a very specific group of respondents.

The study found a major gap in local financing available for these businesses.  In particular, while 75% indicated that they would like to take out a loan in the next five years, only 25% have tried.  Most of these business are newer and 40% are seeking 100,000 NGN (~$620 USD) or less, but are deterred by high collateral requirements and not knowing how to contact loan officers.

With this knowledge, USAID can more strategically and confidently invest in the agriculture sector responsible for feeding 170 million Nigerians, or nearly 20% of the population of sub-Saharan Africa. The below infographic has more facts and figures on the findings from this survey.

For more information on our on-going collaboration with USAID/DCA see our full case study, and stay tuned for future posts about other upcoming mobile surveys in areas of monitoring and evaluation with USAID/DCA.

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