Working Paper: CEPR ID: DP16848
Authors: 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.
Keywords: Financial Literacy; Predatory Lending; Regression Discontinuity; Randomized Field Experiment
JEL Codes: D14; O12; O16
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| loan demand (G21) | default risk (G33) |
| newly eligible borrowers (G51) | default on last loan (G33) |
| financial literacy intervention (G53) | knowledge about loan terms (G51) |
| financial literacy intervention (G53) | loan uptake (G51) |
| financial literacy intervention (G53) | loan demand (E41) |
| financial literacy treatment (G53) | repayment for new loans (G51) |
| access to digital loans through the kutchova product (G21) | overall financial wellbeing (I31) |