Silvia Prina (Northeastern): From Default to Second Chances: Rehabilitating Delinquent Digital Borrowers
Abstract: Digital credit products in low- and middle-income countries are typically unsecured and feature limited enforcement. How can lenders in such markets recover value from delinquent borrowers? We run a randomized experiment with a digital lender in sub-Saharan Africa, testing two interventions: payment plans and restoration of credit eligibility conditional on repayment. Payment plans increase repayments by 57% and loan settlement by 48%. Eligibility restoration notices have little effect, and combining both interventions undermines the effect of payment plans alone. Our findings suggest that in digital credit markets, reducing repayment frictions is more effective than strengthening dynamic incentives for borrower rehabilitation.
Economics
Email