Study Overview
Technologies have expanded the set of financial contracts that financial firms can use in the market for consumer loans. A notable instance is digital collateral: consumers take a loan and lenders can remotely de-activate certain goods valued by consumers when they are late on their payments. For instance, smartphones or solar home systems (SHS) can be used as such digital collateral. The typical contract currently used in practice is a PayGo contract: a payment activates the good for a period; a missed payment shuts it off for a period. One pitfall of PayGo contracts is that borrowers can be strategic: they may repay only when they need their phone or SHS and otherwise miss payments. This behavior can extend loan durations and reduce lending profitability for lenders (and thus restricting loan supply). In this project, we explore how different contract designs can help spur repayment, consumer loan take-up and consumer welfare. One particular contract we will study features automatic catch-up where payments increase as consumers miss payments.
Study Results
Pending
Intervention: Randomized variation in contract types offered (PayGo vs. Automated Catch-up)
Intervention Partner: ENGIE
IBSI Funding Acknowledgement: Lab for Inclusive FinTech (LIFT)