Recent years have seen rapid digitization in developing countries, from mobile money platforms to bio-metric smart cards.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. The research team undertakes 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. The researchers assess potential negative channels, such as reduced observability of repayment by other group members and non-mandatory meeting attendance, by experimentally manipulating whether microfinance clients repay digitally. They then observe repayment performance, the quality of observation of the loan performance of other group members, and social interactions by group members. They randomize individuals into three groups: an individual choice group where individual borrowers are each allowed to opt in or out of digital repayment, a digital repayment group where all borrowers in that group are asked to repay digitally, and a comparison group with the traditional microfinance model. This randomization provides an opportunity to assess the impact of digital repayment on those who would not choose it willingly, allowing insight into impacts of individuals with varied enthusiasm about digital repayment. They also experimentally test whether giving participants a receipt which explicitly confirms their payment to BRAC microfinance on a given date increases use of and confidence in the digital repayment system.
Supplementary DCO funding will allow the researchers to measure women’s economic empowerment, and distinguish how introducing digital payment particularly impacts the approximately twelve thousand participating female borrowers in Central Uganda outside of their microfinance loans. They will consider direct measures of empowerment such as financial control within the household, as well as indirect measures including women’s entrepreneurial activity. Results forthcoming.
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