Digital technology is rapidly emerging as integral to the future of development policy, and particularly to financial services. Recent years have seen rapid digitization in developing countries, from mobile money platforms to biometric smart cards. These innovations are largely perceived as beneficial, saving users on both sides of the transaction effort and time, and often enabling better monitoring. The use of mobile money to streamline payments is only becoming more commonplace. Despite this, relatively little is known about the effects of switching to mobile money. We propose to undertake a randomized control trial to evaluate the effects of digital repayment for microfinance, looking both at barriers to take-up and the effects of digital repayment on the integrity of the microfinance joint liability model.
Digital repayment might negatively affect repayment behavior and default rates through two main channels. First, digital repayment will result in reduced observability of loan repayments by other group members. Second, digital repayment will make meeting attendance less mandatory, which might decrease the social cohesion of microfinance groups. We assess both channels by experimentally giving microfinance clients in some groups the option to repay digitally, and observe repayment performance, the quality of observation of the loan performance of other group members, and social interactions by group members, but also the extent to which group members care about loan observability.
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