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Digital Credit: Filling a hole, or digging a hole? Evidence from Malawi

Financial Inclusion Seminar   |  past event  |  Sep 18 2020

Credit: Alexandra Wall

On September 18th, CEGA’s Digital Credit Observatory (DCO), as part of the DCO Webinar Series, hosted “Digital Credit: Filling a hole, or digging a hole? Evidence from Malawi.”
Jonathan Robinson (University of California, Santa Cruz; DCO Scientific Director), Pascaline Dupas (Stanford), and Valentina Brailovskaya (IDinsight) presented preliminary results from their DCO-funded study, “Estimating the Effect of Digital Credit: An Experiment with Airtel Malawi.

Consumer digital credit offered by mobile money networks has expanded rapidly in Africa in recent years. These loans (which are “instant, automated and remote” – CGAP 2016) have the potential to dramatically expand credit access, especially given the hundreds of millions of people in Africa who already have a mobile money account (GSMA 2018). However, as currently offered, consumer digital loans tend to be for small amounts, with short terms and high effective interest rates (well over 100% APR annually).

What is the effect of these loans on individual financial well being, food security, satisfaction? Are consumers sufficiently informed about loan terms—especially the high effective interest rate—to make optimal decisions? To answer these questions for the Malawi context, the research team explored the impacts of credit scores and conducted a randomized evaluation of a financial literacy program informing customers of the sizeable fees and penalties associated with these digital loans. Watch the webinar recording to learn about their findings, which may have implications for similar contexts.

The Digital Credit Observatory (DCO) was designed to support a coordinated portfolio of rigorous research on the impacts—both positive and negative—of digital credit products in emerging markets, and the effectiveness of related consumer protection measures. Since 2016 we’ve funded 16 unique studies in 10 different countries, focusing on a range of topics related to digital credit and digital financial services. We hope that you stay tuned for future portfolio results!

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