Essays on Strategies for Increasing Repayment Rates of Digital Microloans

Access to credit can act as a highly effective tool for poverty reduction and economic growth. The ability to borrow increases the propensity of low-income people to start and maintain businesses, educate their children and withstand financial shocks. These factors, in turn, can help them to move out of poverty and lead to more sustainable economic development. However, traditional financial institutions have inherent limitations that have impeded their ability to serve the poor. Digital lenders are able to leverage the widespread adoption of mobile phones and mobile money to extend credit quickly and conveniently to more people, especially in developing countries. However, due to a lack of credit bureaus and available financial histories of borrowers, digital lenders frequently need to amass vast amounts of data in order to screen borrowers and experiment to find the appropriate loan amount by gradually increasing credit limits based on past repayment. This can lead to high user default rates and over-indebtedness. The lack of collateral during loan applications also means that digital lenders have limited mechanisms for enforcing repayment of loans. Both of these challenges threaten to limit further adoption of digital credit. Through three experimental studies conducted with an airtime lender, I explore theoretical and empirical mechanisms for reducing default rates of digital loans. In the first study, I demonstrate that limited mobile phone data contain enough signals for creating effective credit assessment methods that minimize privacy risks to borrowers. In the second study, I find that increasing credit limits negatively impacts repayments and future borrowing, and offer recommendations for increasing credit limits while minimizing the drawbacks. In the final study, I draw on theories from psychology and consumer behavior to develop vivid repayment reminders. This study found that vivid reminders had limited effectiveness for increasing loan repayment and reducing loan duration. Taken together, these three studies propose new avenues for digital lenders to reduce default rates. The hope of this dissertation is that these proposed methods would lead to a reduction in interest rates, that would ultimately benefit the borrowers

Financial inclusion

Financial inclusion has been noted as a key driver of poverty alleviation and growth. Yet, most of the scholarly work that exists lacks a comprehensive discussion of how the poor interact with financial services and the channels through which such services can affect their livelihoods. This book offers researchers who focus on financial inclusion and African economies a one stop resource for understanding the channels of transmission for financial inclusion as well as an application of these channels through original country specific empirical papers. The book provides a back-to-basics presentation of the transmission of financial services to growth and poverty. This theoretical discussion is complemented by an empirical presentation of the various services used by the poor, with a focus on Africa. Case studies of financial inclusion in six African countries cover a broad range of topics most important to African countries and highlight the unique African setting. These empirical papers provide important learning points. Firstly, hybrid financial institutions such as cooperative financial institutions and financial social entrepreneurs are the best way to increase financial inclusion in Africa. They provide important vehicles to circumventing the restrictive and exclusive bank-based financial markets typical of African economies. Secondly, digital finance is a potent tool in improving financial access and usage in Africa, and its impact on poverty operates through both traditional and nontraditional financial instruments. Thirdly, investment in infrastructure which supports complementary markets is critical and is likely to have a greater effect on credit rationing than direct provision of credit to small businesses

Social Enterprise in Asia

In the absence of a widely accepted and common definition of social enterprise (SE), a large research project, the ""International Comparative Social Enterprise Models"" (ICSEM) Project, was carried out over a five-year period; it involved more than 200 researchers from 55 countries and relied on bottom-up approaches to capture the SE phenomenon. This strategy made it possible to take into account and give legitimacy to locally embedded approaches, thus resulting in an analysis encompassing a wide diversity of social enterprises, while simultaneously allowing for the identification of major SE models to delineate the field on common grounds at the international level. These SE models reveal or confirm an overall trend towards new ways of sharing the responsibility for the common good in today’s economies and societies. We tend to consider as good news the fact that social enterprises actually stem from all parts of the economy. Indeed, societies are facing many complex challenges at all levels, from the local to the global level. The diversity and internal variety of SE models are a sign of a broadly shared willingness to develop appropriate—although sometimes embryonic—responses to these challenges, on the basis of innovative economic/business models driven by a social mission. In spite of their weaknesses, social enterprises may be seen as advocates for and vehicles of the general interest across the whole economy. Of course, the debate about privatisation, deregulation and globalised market competition—all factors that may hinder efforts in the search for the common good–has to be addressed as well. The first of a series of four ICSEM books, Social Enterprise in Asia will serve as a key reference and resource for teachers, researchers, students, experts, policy makers, journalists and other categories of people who want to acquire a broad understanding of the phenomena of social enterprise and social entrepreneurship as they emerge and develop across the world