Mobile financial services have become the main channel of financial inclusion, especially in low-income countries. However, consumer protection failures in the sector remain common. In Uganda, researchers partnered with the Uganda Communications Commission to conduct a phone-based survey among 1,000 users of mobile financial services to inquire about their experiences. In addition, they are leveraging access to mobile network operators’ customer care logs to test and implement new tools for analyzing complaints and resolving disputes.
This final report summarizes the key findings and recommendations from IPA's work with the Uganda Communications Commission (UCC) analyzing consumer complaints records. A report summarizing the findings from the consumer survey can be found here.
The expansion of digital credit in recent years creates an urgent need to monitor the digital credit market to develop policies to improve product suitability and responsible lending. In Kenya, this expansion over the past five years has increased access to credit but also led to new consumer risks. The Competition Authority of Kenya (CAK) and IPA audited loan data from Kenya’s leading digital credit providers to inform the development of consumer protection policy strategies for the tens of millions of Kenyans who use digital credit products.
We study a simple savings scheme that allows workers to defer receipt of part of their wages for three months at zero interest. The scheme significantly increases savings during the deferral period, leading to higher post-disbursement spending on lumpy expenditures. Two years later, after two additional rounds of the savings scheme, we find that treated workers have made permanent improvements to their homes. The popularity of the scheme suggests a lack of good alternative savings options, and analysis of a follow-up experiment shows that demand for the scheme is also due to the scheme’s ability to address self-control issues.
It is often argued that people might take on too much high-cost debt because they are present focused and/or overoptimistic about how soon they will repay. We measure borrowers' present focus and overoptimism using an experiment with a large payday lender. Although the most inexperienced quartile of borrowers underestimate their likelihood of future borrowing, the more experienced three quartiles predict correctly on average. This finding contrasts sharply with priors we elicited from 103 payday lending and behavioral economics experts, who believed that the average borrower would be highly overoptimistic about getting out of debt. Borrowers are willing to pay a significant premium for an experimental incentive to avoid future borrowing, which we show implies that they perceive themselves to be time inconsistent. We use borrowers' predicted behavior and valuation of the experimental incentive to estimate a model of present focus and naivete. We then use the model to study common payday lending regulations. In our model, banning payday loans reduces welfare relative to existing regulation, while limits on repeat borrowing might increase welfare by inducing faster repayment that is more consistent with longrun preferences.
Convincing lending institutions to provide credit to the poor can be a challenge given that poorer clients often have limited to no credit histories and are therefore deemed high risk. A pilot study in Malawi showed that using fingerprints as unique IDs to track credit histories increased repayment behavior of microfinance borrowers, holding promise as a way to help more poor borrowers access credit. With support from USAID’s Development Impact Ventures, researchers collaborated with lenders and a centralized credit data repository in Malawi to evaluate the impact of this approach prior to its transition to scale. The implementation of the scale-up faced many challenges and researchers saw relatively low adoption of fingerprint identification by local microfinance institutions. These results highlight the challenge of scaling up a complicated technology in a resource-constrained setting, and the broader importance of evaluating interventions beyond the pilot scale before expanding them to reach larger populations.
The Social Media Usage by Digital Finance Consumer Project is part of IPA’s Consumer Protection Research Initiative. The objective of the project is to deepen the understanding of the types of consumer protection problems experienced by digital finance consumers across three countries and types of financial providers. It consists of a social media listening tool tested on digital financial services in Kenya, Nigeria and Uganda, and will be used to inform potential further experimentation with consumer engagement and complaint handling via social media by regulators and civil society.
The digitization of financial services has been on the rise in the past years and has experienced a particularly big leap after the COVID-19 pandemic due to the temporary closure of physical offices and bank branches of many financial service providers. As financial services go digital, so do consumers by sharing their experiences, complaints and reviews through online channels and social media. Increasing use of social media channels to share feedback, concerns, and challenges provides new opportunities for insights into issues affecting digital consumers which can complement traditional methods such as phone or in-person consumer surveys.
To explore these opportunities, IPA piloted a social media listening and analysis project for consumer protection monitoring in digital financial services. This project has been developed in collaboration with Citibeats, an Ethical AI platform analyzing unstructured text. The project collects historical data on consumer protection-relevant content published on Twitter, Facebook Public Pages and Google Play Store Reviews and analyzes it using Artificial Intelligence algorithms based on Natural Language Processing and semi-supervised machine learning. The analysis provides insights into the types of consumer protection issues faced by consumers across countries and financial providers, classified into four types: 1) Commercial Banks; 2) Telecommunication companies offering mobile money services; 3) Fintech start-ups mainly offering online lending products and payment methods; and 4) Microfinance institutions.
To learn more about the methodology and main findings of this project, click the "Download" button or the PDF preview image to the right to download the full report.
¿Puede el rediseño de los estados de cuentas de aportes a las pensiones aumentar la comprensión de los aspectos clave relacionados con el sistema de pensiones y mejorar la cobertura? Investigadores en Colombia se asociaron con Colpensiones, la administradora pública de fondos de pensiones de Colombia, para probar el efecto del rediseño de los extractos de pensiones en la comprensión de la información presentada a los beneficiarios y la identificación de posibles errores en sus extractos. El rediseño de los estados de cuenta condujo a una mejora en la comprensión de los beneficiarios de su información y a un aumento de las correcciones solicitadas, aunque estos efectos variaron según el tipo de beneficiario.
¿Cómo apoyan las transferencias monetarias a las poblaciones vulnerables recientemente designadas y trabajadores informales durante una crisis económica? Para ayudar a responder estas preguntas, los investigadores están estudiando el efecto de Ingreso Solidario, una nueva transferencia monetaria no condicionada en Colombia que se puso en marcha en respuesta a la pandemia del COVID-19. Ingreso Solidario atenderá a hasta 2,6 millones de hogares de renta media baja que no estaban inscritos en otros programas de asistencia social existentes, ampliando así la cobertura de la protección social a las poblaciones de renta media baja. Los investigadores están evaluando los efectos de la transferencia en los ingresos de los beneficiarios, el gasto alimentario y no alimentario, la participación en el mercado laboral y la adopción y uso de productos financieros digitales.
Founded in 2019, IPA Nigeria develops applicable research by building foundational research capacity and conducting evaluations in areas of pressing national concern. Examples of our work in this brief offer promising insights into critical issues that affect the lives of the Nigerian poor.
According to the 2019 FinAccess survey, 8.4 percent of mobile money users in Kenya report having lost funds on their mobile money accounts—and 70 percent of these cases were due to third-party phone or SMS fraud. Yet no one has unpacked why certain consumers suffer from fraud, nor why they often don’t use formal complaints channels when they suffer loss of funds or fraud. Similarly, FinAccess found that 42 percent of mobile money users could not correctly interpret the price disclosure screen, and 19 percent of digital borrowers report issues with transparency of fees. Yet little is known how this influences financial decisions and what new information or delivery channels may impact knowledge and choice. This survey will answer these and other key questions on consumer protection in digital finance to help inform further experimentation and policy development. We will also leverage this existing survey to provide governments and organizations responding to the COVID crisis information about the financial impacts of the pandemic by measuring recent changes in financial resiliency, use of mobile money and phone-based loans, and instances of digital fraud.
IPA Uganda conducted a random digit dial (RDD) survey on consumer protection issues with a completely virtual phone bank and a quota sampling protocol meant to cover a broad selection of adults in the country. Quota sampling involves placing calls until a quota is reached for each combination of respondent characteristics, whose prevalence in the target population is believed to be known. It is a good way to achieve samples that are representative along key dimensions. In some cases, it can increase time and monetary costs substantively to meet quotas for rare combinations of respondent characteristics.
I present evidence that unmet liquidity needs for indivisible, "lumpy," expenditures increase demand for betting as a second-best method of liquidity generation in the presence of financial constraints. With a sample of 1,708 sports bettors in Kampala, Uganda, I show that participants' targeted payouts are linked to anticipated expenditures, while winnings increase lumpy expenditures disproportionately. I show that a randomized savings treatment decreases demand for betting. And I use two lab-in-the-field experiments to show that unmet liquidity needs and saving ability are important mechanisms. These results cannot be explained by betting as a purely normal good.
We conduct a ﬁeld experiment offering graduated microcredit clients the opportunity to ﬁnance a business asset worth four times their previous borrowing limit. We implement this using a hire-purchase contract; our control group is offered a zero-interest loan. We ﬁnd large, signiﬁcant and persistent effects from asset ﬁnance contracts: treated microenterprise owners run larger businesses and enjoy higher proﬁts; consequently, household consumption increases, particularly on food and children’s education. A dynamic structural model with non-convex capital adjustment costs rationalizes our results; this highlights the potential for welfare improvements through large capital injections that are ﬁnancially sustainable for microﬁnance institutions.
Markets for consumer financial services are growing rapidly in low and middle income countries and being transformed by digital technologies and platforms. With growth and change come concerns about protecting consumers from firm exploitation due to imperfect information and contracting as well as from their own decision-making limitations. We seek to bridge regulator and academic perspectives on these underlying sources of harm and five potential problems that can result: high and hidden prices, overindebtedness, post-contract exploitation, fraud, and discrimination. These potential problems span product markets old and new, and could impact micro- and macroeconomies alike. Yet there is little consensus on how to define, diagnose, or treat them. Evidence-based consumer financial protection will require substantial advances in theory and especially empirics, and we outline key areas for future research.
Researchers study the impact of money on households during the COVID-19 pandemic. In March 2020, Colombia rolled out a new unconditional cash transfer (UCT) to one million households in poverty worth $19 (PPP $55.6) and paid every 5-8 weeks. Using an RCT and linked administrative and survey data, they find the UCT had positive (albeit modest) effects on measures of household well-being (e.g., financial health, food access). Moreover, the UCT boosted support for emergency assistance to households and firms during the crisis and promoted social cooperation. Finally, they explore the bottlenecks in expanding mobile money during a pandemic.