BREAD Working Paper No. 605, February 2022

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


Valentina Brailovskaya, Pascaline Dupas and Jonathan Robinson



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.

JEL classification: D14, O12, O16

Keywords: financial literacy, predatory lending, regression discontinuity, field experiment


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