Digital Collateral / Paul Gertler, Brett Green, Catherine Wolfram.

Format:

Book

Author/Creator:

Gertler, Paul.

Contributor:

National Bureau of Economic Research.

Green, Brett.

Wolfram, Catherine.

Series:

Working Paper Series (National Bureau of Economic Research) no. w28724.

NBER working paper series no. w28724

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2021.

Summary:

A new form of secured lending using "digital collateral" has recently emerged, most prominently in low- and middle-income countries. Digital collateral relies on lockout technology, which allows the lender to temporarily disable the flow value of the collateral to the borrower without physically repossessing it. We explore this new form of credit both in a model and in a field experiment using school-fee loans digitally secured with a solar home system. Securing a loan with digital collateral drastically reduces default rates (by 19 pp) and increases the lender's rate of return (by 38 pp). Employing a variant of the Karlan and Zinman (2009) methodology, we decompose the total effect on repayment and find that roughly one-third is attributable to adverse selection, and two-thirds is attributable to moral hazard. In addition, access to digitally secured school-fee loans significantly increases school enrollment and school-related expenditures without detrimental effects to households' balance sheet.

Notes:

Print version record

April 2021.