Study Overview
Digital loans have exploded in popularity across low- and middle-income countries, providing short term, high interest credit via mobile phones. This paper reports the results of a randomized evaluation of a digital loan product in Nigeria. Being randomly approved for digital credit (irrespective of credit score) substantially increases subjective well-being after an average of three months. For those who are approved, being randomly offered larger loans has an insignificant effect. Neither treatment significantly impacts other measures of welfare. We rule out large short-term impacts– either positive or negative– on income and expenditures, resilience, and women’s economic empowerment.
Study Results
This project demonstrates evidence that increasing access to digital loans can improve subjective well-being among applicants, measured after an average of three months. The magnitude of this effect is similar to that of costly anti-poverty interventions, even though the digital loans do not consume government or donor resources. This result highlights how even small relaxations of constraints can substantially improve mental health. At the same time, offering applicants larger loans does not have a significant effect. Randomly allocated digital credit is not associated with large positive– and negative– effects on other dimensions of welfare, including income and expenditures, resilience, and women’s economic empowerment.
Intervention: Randomized digital loan product
Populations: New customers on a popular digital credit platform
IBSI Funding Acknowledgement: Lab for Inclusive FinTech (LIFT)