Increasing Repayment of Past Due Digital Credit Loans in Southern Africa

Financial Inclusion Digital Finance Access to Finance Consumer Protection

Increasing Repayment of Past Due Digital Credit Loans in Southern Africa

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Members of a Savings and Credit Cooperative. © 2015 Tom Gilks
Members of a Savings and Credit Cooperative. © 2015 Tom Gilks

Researchers are partnering with IPA to conduct a randomized evaluation to measure whether loan repayment plans and notices about future loan eligibility increase borrowers’ repayment of past due digital loans.

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Digital credit is an increasing source of finance in low- and middle-income countries in Africa, providing borrowers quick access to short-term loans.1 However, evidence suggests that default rates for digital loans can be high.2 This can decrease lenders’ profitability and prompt them to institute higher interest rates to recover losses. Meanwhile, loan delinquency can prevent borrowers from accessing digital credit in the future, in turn decreasing the potential for financial inclusion.

Researchers are partnering with IPA to measure whether repayment plans and notices about future loan eligibility increase borrowers’ repayment of past due loans. A total of 4,000 borrowers who have loans more than 90 days past due have been randomly divided into the following groups:

  • Repayment plan: Borrowers can repay loans over four equally-sized weekly installments and receive weekly SMS reminders about installment dates. If payments are missed, the balance is spread equally over the remaining weeks.
  • Eligibility notices: Borrowers receive an SMS notice about their eligibility to receive future loans if they have repaid their loans in full within 30 days. They will also receive generic weekly SMS reminders to repay their loans.
  • Repayment plan + eligibility notices: Borrowers can take up the repayment plan and receive the future loan eligibility notice.
  • Comparison: Borrowers receive generic weekly SMS reminders to repay their loans and serve as the comparison group.

Results will be available later in 2024.

Sources

1. Francis, Eilin, Joshua Blumenstock, and Jonathan Robinson. "Digital credit: A snapshot of the current landscape and open research questions." CEGA White Paper (2017): 1739-76.

2. Brailovskaya, Valentina, Pascaline Dupas, and Jonathan Robinson. "Is digital credit filling a hole or digging a hole? evidence from malawi." The Economic Journal 134, no. 658 (2024): 457-484.

Carlson, Stacy. "Dynamic incentives in credit markets: An exploration of repayment decisions on digital credit in africa." Department of Economics (2017).

Burlando, Alfredo, Michael A. Kuhn, and Silvia Prina. "Too fast, too furious? digital credit delivery speed and repayment rates." (2021).