In the past few years, Sub-Saharan African countries have seen the emergence of digital credit – loans made through cell phones. These types of loans provide a potential solution to common problems associated with microcredit, which include high transaction costs such as the cost of traveling to the nearest bank branch or time taken by lenders in approving and processing loans. In Malawi, digital credit is on offer through a mobile network operator (thereafter telco). In terms of loan terms and conditions, digital loans look similar to payday loans in the developed world; just like with payday loans, there is an active debate over whether consumers are informed about loan terms, and whether they accurately gauge the costs of these loans.
In this project, we seek to answer: what is the impact of consumer knowledge of digital credit terms and conditions on take-up of the digital loan? We will evaluate this question using a randomized controlled trial where we test the effect of an information treatment on take-up of the digital loan. The information treatment consists of an interactive-voice-response (IVR) quiz that is designed to teach participants about the terms and conditions of the loan. We will use surveys, as well as telco-generated administrative data, to compare outcomes of those sampled for the information treatment, hose sampled for a lighter information treatment (consisting only of SMSs which state loan conditions), tohse sampled for a salience treatment (they receive an IVR call like those in the IVR information group, but the quiz is just a minute long and does not include information) and a control group. By applying this research design, we hope to identify the effect of consumer awareness of loan conditions on demand for digital credit.