Instant Loans Can Lift Subjective Well-Being: A Randomized Evaluation of Digital Credit in Nigeria

Abstract

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.

The Impact of Digital Credit in Developing Economies: A Review of Recent Evidence

“…We include 8 studies in this review, 7 of which were funded by the Digital Credit Observatory at the Center for E↵ective Global Action (CEGA). We split the studies by the type of lender: Bank-MNO partnerships (Suri et al 2021, Brailovskaya et al 2021and Toth 2021, airtime loans (Barriga-Cabanillas and Lybbert 2021 and Shema 2021), and non-bank fintech products (Björkegren et al 2022, Burlando et al 2021and Karlan et al 2020. These studies and products are summarized in Table 2.…”

“…Table A1 provides an overview of the research methods used by the eight studies covered in this review, including the identification strategy, sample size, and timeline. Of the studies with detailed impact results, two are regression discontinuities (Suri et al 2021 andBrailovskaya et al 2021) and one is an RCT (Björkegren et al 2022).…”

“…For all of these products, take-up rates are very high, though this is not necessarily that informative because the studies were designed around interested borrowers. For example, Björkegren et al (2022) focused on people who had recently installed the lending app on their phone; Burlando et al (2021) are only able to study borrowers who had already been approved for loans; and Karlan et al (2020) focus on farmers who have already qualified for a loan. The average loan size in these studies is $15 in Björkegren et al (2022), $40 in Karlan et al (2020) and $91 in Burlando et al (2021).…”

“…We note that of the 8 original studies, several were beset by implementation and logistical challenges with the lender or product -a common occurrence with collaborations between researchers and digital credit providers, since lenders frequently change plans or remove products from the market. We thus focus on 3 main studies that have rigorous results on welfare impacts: Suri et al (2021), Björkegren et al (2022), and…”

“…The paper finds no evidence of harmful e↵ects on other outcomes. Björkegren et al (2022) looks at a digital smartphone lending app in Nigeria, finding positive e↵ects on subjective well-being, but statistically insignificant e↵ects on other measures of welfare. Brailovskaya et al (2021), which studies the Kutchova product in Malawi, shows similar, modest e↵ects on most outcomes.…”