Smart Brief: Tiny Loans Big Questions

Tiny Loans Big Questions CoverNano-loans have generated both significant scale and a certain amount of controversy. These very small, instant consumer loans have ballooned from 11 deployments in 2011, to 52 in 2016, with a particular concentration in East Africa. 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.

This Brief enumerates and discusses emerging consumer risks posed by nano-loans, using the Client Protection Principles as an organizing framework. We hope this lens will assist the mobile financial sector to articulate and build a consensus about responsible practices in mobile finance.

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Explainer Video – Tiny Loans, Big Questions