DP16848 Is Digital Credit Filling a Hole or Digging a Hole? Evidence from Malawi
|Author(s):||Valentina Brailovskaya, Pascaline Dupas, Jonathan Robinson|
|Publication Date:||December 2021|
|Keyword(s):||financial literacy, Predatory lending, Randomized field experiment, Regression Discontinuity|
|JEL(s):||D14, O12, O16|
|Programme Areas:||Development Economics|
|Link to this Page:||cepr.org/active/publications/discussion_papers/dp.php?dpno=16848|
Digital credit has expanded rapidly in Africa, mostly in the form of short-term, high-interest loans offered via mobile money. Loan terms are often opaque and consumer financial literacy is low, providing opportunities for predatory lending. A regression discontinuity analysis shows no negative effect of access to digital loans on financial well-being, but the majority of borrowers fail to repay on time and incur high late fees. We randomize exposure to a short phone-based financial literacy intervention. The intervention improved knowledge and marginally improved loan repayment but increased loan demand, increasing overall default risk.