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Promises and pitfalls of digital credit: Empirical evidence from Kenya

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  • Constantin Johnen
  • Martin Parlasca
  • Oliver Mußhoff

Abstract

Digital credit is a recent innovation that raises hopes of improving credit access in developing countries. However, up until now, empirical research on the extent to which digital credit actually reaches people who are otherwise excluded from conventional credit markets and whether increased credit access is sustainable or threatened by high default and blacklisting rates is very scarce. Using representative data from Kenya, this article shows that digital credit increases borrowing opportunities, including for people less likely to otherwise have credit access in the conventional credit markets. However, we find that digital credit borrowing is also responsible for 90% of all blacklistings, which is partially driven by higher default rates in the digital credit market but also by a higher probability that digital credit defaults lead to blacklisting of the borrower, compared to defaults in other credit markets.

Suggested Citation

  • Constantin Johnen & Martin Parlasca & Oliver Mußhoff, 2021. "Promises and pitfalls of digital credit: Empirical evidence from Kenya," PLOS ONE, Public Library of Science, vol. 16(7), pages 1-14, July.
    • Handle: RePEc:plo:pone00:0255215
    DOI: 10.1371/journal.pone.0255215
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    References listed on IDEAS

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    1. Yasmin Agueda Rios-Solis & Mario Alberto Saucedo-Espinosa & Gabriel Arturo Caballero-Robledo, 2017. "Repayment policy for multiple loans," PLOS ONE, Public Library of Science, vol. 12(4), pages 1-12, April.
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    Cited by:

    1. Daniel Bjorkegren & Joshua Blumenstock & Omowunmi Folajimi-Senjobi & Jacqueline Mauro & Suraj R. Nair, 2022. "Instant Loans Can Lift Subjective Well-Being: A Randomized Evaluation of Digital Credit in Nigeria," Papers 2202.13540, arXiv.org.
    2. Constantin Johnen & Oliver Mußhoff, 2023. "Digital credit and the gender gap in financial inclusion: Empirical evidence from Kenya," Journal of International Development, John Wiley & Sons, Ltd., vol. 35(2), pages 272-295, March.

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