Open AccessPromises and pitfalls of digital credit: Empirical evidence from Kenya
Author(s) -
Constantin Johnen,
Martin C. Parlasca,
Oliver Mußhoff
Publication year - 2021
Publication title -
plos one
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.99
H-Index - 332
ISSN - 1932-6203
DOI - 10.1371/journal.pone.0255215
Subject(s) - blacklisting , default , credit reference , credit default swap , credit default swap index , credit history , credit risk , business , empirical evidence , installment credit , bond market , credit crunch , credit enhancement , economics , financial system , monetary economics , actuarial science , finance , market economy , philosophy , epistemology
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.