Exploring the Rise and Impact of Digitizing Credit

Digitizing financial services has enabled tremendous innovation in the provision of credit in low- and middle-income countries (LMICs), with potential to drive financial inclusion, reduce poverty, and spur economic growth. However, digital credit is also associated with a proliferation of misconduct, consumer abuses, and over-indebtedness, which can have severe consequences for the most vulnerable consumers. This discussion will bring evidence and data to bear on the impacts of digital credit, with a focus on Mobile Instant Credit (MIC): small, consumption-oriented digital loans. These loans do not appear to effect real economic outcomes like consumption or asset ownership, but have had positive impacts on subjective wellbeing. Although causal studies thus far have not found negative impacts for the average consumer, robust descriptive evidence sheds light on diverse consumer protection challenges including rising debt stress, price shrouding and overcharging, predatory collections, and fraud. Despite this, there are reasons for optimism. Digitization has catalyzed rapid growth in financial inclusion and appears to be accelerating. This evidence is particularly informative for emergent forms of consumer-oriented digital credit, but to ensure the continued digitization of lending best serves consumers and development priorities, evidence on Mobile Instant Credit can and should inform policy for digital credit more broadly.