Lending a Hand

Digital loans are often seen as a blessing and a curse in developing countries: They provide credit to those who lack access to banking but can also burden borrowers with interest rates as high as 200%. 

And there’s been little evidence that digital loans improve people’s lives—until now.

 New research co-authored by Associate Professor Omri Even-Tov and three colleagues finds that randomly approved digital loan borrowers in Kenya saw bigger mobile money balances, higher income, better employment prospects, and expanded social networks from an average loan of just $36.

The first-of-its-kind study was based on a detailed analysis of fintech cellphone data  from more than 20,000 loan applications.

“In comparing those who got the loans with those who didn’t, we find pretty strong evidence that their financial well-being improved as a result,” says Even-Tov, faculty director for the Center for Social Sector Leadership. 

The benefits are especially noticeable when the loans support business purposes—the case for 73% of borrowers in the sample and one of the main differentiators from other studies. 

“Maybe they’ve had a business shock or need more inventory to grow. Without those loans, they wouldn’t be able to make it happen,” Even-Tov says. 

To enable these loans, the Kenyan borrowers gave consent for access to their mobile data—a practice that could be considered in the U.S., where 5 million don’t have credit access, Even-Tov says.  

“This is about helping the unbanked,” he says. “Maybe there’s an opportunity to use this at a larger scale.”