There is something deeply attractive about a loan that arrives before the need becomes an emergency. For millions of people who have spent years outside traditional banking, this can look like freedom. When credit becomes extremely easy to obtain, the question changes from “Can this person get a loan?” to “Should this person be taking another loan?” and this is where the debate over financial inclusion and predatory inclusion begins.
The World Bank describes digital credit as typically short-term, relatively small loans delivered through mobile devices, often using automated or alternative-data credit scoring. It also warns that some products have created consumer risks, including very high prices and weak affordability assessments. In some markets, annualized costs have reached as high as 621%.
The technology can open the financial system and can also make debt easier to accumulate.
The Promise P2P Lending Was Built On
The original idea behind peer-to-peer lending was fairly simple. Instead of a traditional bank sitting between savers and borrowers, technology could connect people who wanted to lend money with people who needed it. A platform could handle matching, payments, identity checks and risk assessment while potentially lowering some of the costs associated with traditional banking.
The model became particularly attractive in markets where millions of people lacked formal credit histories, but an important distinction often gets lost in discussions about fintech: P2P lending is not the same as every digital loan app.
In genuine P2P lending, the platform generally acts as an intermediary connecting lenders and borrowers. India provides one of the clearest examples of a formal regulatory framework. The Reserve Bank of India requires P2P platforms to operate as registered NBFC-P2Ps and explicitly prohibits them from lending from their own balance sheets.
India’s P2P market includes regulated platforms operating within this framework, while the country’s central bank has repeatedly tightened the rules after finding that some platforms were behaving more like lenders or deposit takers than neutral marketplaces. In 2024, the RBI specifically warned against practices such as assured returns and using one lender’s funds to replace another lender’s.
Elsewhere, however, much of what consumers call P2P lending is actually digital lending, and this difference is important because a digital lender may use its own balance sheet or institutional funding rather than connecting an individual investor directly with an individual borrower.
ALSO READ: Crypto Lending Explained, a Beginner’s Guide To Earning Passive Income
Nigeria is a good example of why the distinction matters. The country’s digital credit market includes fintech lenders and mobile loan apps, not a large, clearly defined retail P2P lending market comparable to India’s regulated NBFC-P2P sector. Nigeria’s FCCPC has spent years targeting unregistered digital money lenders and in 2025, introduced the Digital, Electronic, Online, or Non-Traditional Consumer Lending Guidelines (DEON Regulations) to impose requirements around registration, transparency, data protection, responsible lending, and recovery practices.
The Binance case belongs in this conversation, but with an important qualification: Binance’s P2P marketplace connects buyers and sellers of crypto assets, and is exactly P2P lending. In 2023, Nigeria’s SEC sent a preliminary stop order to Binance, saying its Nigerian operation was not registered or regulated by the Commission. In 2024, authorities further cracked down on the exchange and halted its operations, blocking its websites and completely halting all Nigerian Naira (NGN) services.
The CBN later issued rules for banks’ relationships with virtual asset service providers as Nigeria moved toward a more formal framework for the sector.
RELATED: What’s Actually in Nigeria’s VASP Bill and Where It Stands Now
The broader lesson is that regulators are increasingly asking the same question across fintech: Who is actually providing the financial service, and who is responsible when things go wrong?
The Algorithm Decides Who Gets the Money
Traditional banks often want a credit history, which creates a problem for someone who has never borrowed formally. A person can run a profitable small business, pay rent on time, and move thousands of naira through a mobile wallet while still appearing almost invisible to a conventional credit system. This is where alternative credit scoring comes in.
Instead of relying only on traditional credit reports, digital lenders can analyse transaction histories, repayment behaviour, mobile money activity and other forms of digital data. The World Bank says these systems can help lenders assess people without formal credit histories and improve risk prediction compared with purely traditional methods.
Artificial intelligence can take that process even further. A machine-learning model can examine thousands of variables and identify patterns that a human loan officer might miss. That can reduce the cost of underwriting small loans, making it commercially possible to serve customers who would otherwise be too expensive to assess individually.
The World Bank also warns that algorithms can produce biased outcomes when their underlying data is incomplete or unrepresentative. They can use seemingly neutral information that acts as a proxy for sensitive characteristics, so the algorithm may remove one form of human bias while quietly introducing another.
That is why the debate is no longer simply about whether AI can make lending faster but whether it can make it fairer.
When the Interest Rate Starts Looking Like a Trap
Access to credit means very little if the price of that credit makes repayment unrealistic. A borrower may receive a $1000 loan within minutes and feel financially included, but if they must repay it quickly, with fees and penalties that consume a large part of their next income, the loan may solve today’s problem by creating tomorrow’s crisis.
Evidence from Kenya offers a useful warning, and research on digital borrowers shows rates can be substantially higher than conventional borrowing costs. A recent study of Kenya’s digital credit market reported monthly interest rates ranging from 7.5% to 20%, while some lenders and researchers have reported annual percentage rates above 300%.
The World Bank has separately documented digital lending products with annualized costs reaching as high as 621% in some markets, and this is where the language of inclusive finance or exploitation becomes uncomfortable. Although these numbers need context because a short-term loan’s headline fee is not the same as an annual interest rate, the underlying problem remains clear.
A small loan can be extremely expensive when the borrower has very little room for error. Kenya’s Competition Authority has also warned about digital credit fees, hidden charges and over-indebtedness, noting that fees in some digital finance products have ranged from 7.5% to 10% per month.
What Happens When the Borrower Cannot Pay?
A 2017 survey of more than 3,000 Kenyan phone users found that around half of digital borrowers had repaid a loan late, while about 13% reported defaulting. Another 2017 survey of more than 3,000 Kenyan phone users found that around half of digital borrowers repaid a loan late, while about 13% reported defaulting.
A later CGAP summary of Kenya and Tanzania found similarly troubling patterns. Around half of borrowers in both countries had repaid a digital loan late, while 12% of Kenyan borrowers and 31% of Tanzanian borrowers reported defaulting. Some borrowers borrowed more money to repay an existing loan, creating the conditions for debt cycling.
While this is not necessarily proof that every digital lender creates a debt trap, it is, however, proof that over-indebtedness is a real consumer risk in rapidly expanding digital credit markets.
Collection practices can make matters worse, and Nigeria provides a particularly important example. The FCCPC has documented complaints involving harassment, privacy violations, abusive recovery methods, and other misconduct among digital money lenders. In 2025, its new regulations explicitly addressed ethical recovery, data protection, and responsible lending. This matters because technology has changed not only how people borrow, but how lenders can chase them.
Regulators Are Finally Catching Up
India has one of the more developed regulatory approaches to formal P2P lending. The RBI requires platforms to register as NBFC-P2Ps, restricts what they can do, and makes clear that lenders bear the risk of borrower losses. Its 2024 amendments also strengthened disclosures around losses and non-performing loans.
Nigeria has taken a different route by focusing heavily on digital consumer lenders. The FCCPC’s 2025 DEON Regulations cover unsecured consumer lending conducted through electronic, online, mobile, or other non-traditional channels. The rules require registration and set standards for transparency, privacy, responsible conduct, and recovery practices.
CGAP’s recent work makes a similar point: its 2026 research on inclusive credit argues that the important question is not simply whether credit works, but for which borrowers, under what product design, and under what conditions it produces benefits rather than harm.
So, Inclusion or Extraction?
The uncomfortable answer is that P2P and digital lending can be both. A small loan can help a market trader buy stock and make a profit. It can help a farmer bridge a short cash-flow gap. It can also give a small business owner access to capital that a traditional bank would never provide, and that is the real financial inclusion.
But if the same system encourages repeated borrowing, hides the true cost, uses opaque algorithms, ignores a borrower’s ability to repay, or uses abusive collection methods, inclusion becomes something else. If my income does not increase, will this loan leave me better off, or will it simply help me borrow again?
The future of inclusive finance will not be decided by how quickly fintech companies can distribute money but by what happens after the money arrives, and because giving someone access to credit is only the first half of financial inclusion, the other half is making sure that access does not become another name for debt.
Disclaimer: This article is intended solely for informational purposes and should not be considered trading or investment advice. Nothing herein should be construed as financial, legal, or tax advice. Trading or investing in cryptocurrencies carries a considerable risk of financial loss. Always conduct due diligence.
Enjoyed this? Bookmark DeFi Planet, explore related topics, and follow us on Twitter, LinkedIn, Facebook, Instagram, Threads, and CoinMarketCap Community for seamless access to high-quality industry insights.
Take control of your crypto portfolio with DEFI PLANET PRO, DeFi Planet’s suite of analytics tools.
