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Is Digital Credit Filling a Hole or Digging a Hole? Evidence from Malawi

Author

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  • Valentina Brailovskaya
  • Pascaline Dupas
  • Jonathan Robinson

Abstract

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.

Suggested Citation

  • Valentina Brailovskaya & Pascaline Dupas & Jonathan Robinson, 2021. "Is Digital Credit Filling a Hole or Digging a Hole? Evidence from Malawi," NBER Working Papers 29573, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:29573
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    Cited by:

    1. Burlando, Alfredo & Kuhn, Michael A. & Prina, Silvia, 2023. "Too Fast, Too Furious? Digital Credit Delivery Speed and Repayment Rates," IZA Discussion Papers 16451, Institute of Labor Economics (IZA).
    2. Ubfal, Diego, 2024. "What Works in Supporting Women-Led Businesses?," IZA Discussion Papers 16950, Institute of Labor Economics (IZA).
    3. Beck, Thorsten & Gambacorta, Leonardo & Huang, Yiping & Li, Zhenhua & Qiu, Han, 2022. "Big techs, QR code payments and financial inclusion," CEPR Discussion Papers 17297, C.E.P.R. Discussion Papers.
    4. Hernández Romero, Karla & Vera-Cossio, Diego A. & Hoffmann, Bridget & Pecha, Camilo, 2024. "The Promises of Digital Bank Accounts for Low-income Individuals," IDB Publications (Working Papers) 13379, Inter-American Development Bank.
    5. Constantin Johnen & Oliver Mußhoff, 2023. "Digital credit and the gender gap in financial inclusion: Empirical evidence from Kenya," Journal of International Development, John Wiley & Sons, Ltd., vol. 35(2), pages 272-295, March.

    More about this item

    JEL classification:

    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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