NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

As the world struggles to return to stable financial footing, fend off inflation, and fuel renewed growth in poor countries, new research shows that digital credit must be reimagined to be an effective tool in this effort. Digitization has made credit accessible to more people in recent years, but many countries lack institutional protections for their most vulnerable citizens, who are most susceptible to fraud and exploitation. With billions of dollars of credit being disbursed to consumers in low- and middle-income countries (LMICs), the need for more evidence-informed safeguards is clear.

Mobile Instant Credit: Impacts, Challenges, and Lessons for Consumer Protection is a collaborative report from the Center for Effective Global Action (CEGA) at UC Berkeley and Innovations for Poverty Action (IPA) that contributes to a common understanding, shared vocabulary, and conceptual framework to advance knowledge of the relationship between global development and the digitization of credit. Specifically, the report focuses on Mobile Instant Credit (MIC)—small digital loans that are primarily marketed and used for consumption purposes—as there is now a sufficient body of research to inform policy decisions.

The report delivers three key insights for policymakers:

The current evidence reveals that Mobile Instant Credit does not have consistent impacts on consumption, resilience or asset ownership, but leads to modest improvements in subjective wellbeing.
Mobile Instant Credit did not impact the average consumer’s financial health, ability to save, or total spending, but the growth of digital loans in LMICs poses an increased risk of misconduct, including overcharging, fraud, and predatory collection practices.
Several new methods for collecting and analyzing data have shown promise to improve regulatory oversight and empower individuals, but more evidence is needed to understand whether these promising approaches can protect at-risk consumers.

Photo courtesy of WorldRemit Comms.