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Reducing Default and Improving Resilience On Digital Credit

Financial Inclusion Kenya

Financial resilience is important to financial wellbeing. However, in Kenya, about half of households experience unexpected negative events in a year. This study seeks to test a new lending product that would give borrowers who are close to default the opportunity to extend their loan terms, and take out additional small amounts of capital to help them deal with any shocks. The motivation is that borrowers who have an unexpected negative event happen may need some extra time and capital in the short term that they can later repay fully. This study will test that hypothesis by working closely with a digital lender, Tala, to offer extended terms to some customers who default on their loans. It would be run as a randomized control trial with two treatment groups: 1) offered an extended time to pay off their loan, and 2) offered additional capital over the extended time. It will shed light on why people default, and in the long run help build screens for those experiencing negative events to provide them with better financial management tools. The findings will contribute to the design and implementation of programs and policies that intend to reduce defaults, improve resilience and protect consumers. Results forthcoming.

All PIS on Project
  • Tavneet Suri
Partners
  • Tala
  • IPA (Kenya)
Funding
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