CEGA’s Digital Credit Observatory Relaunching, adding Data Privacy Research Area
CEGA is excited to announce the release of our Digital Credit Observatory (DCO) research synthesis, as well as a renewal of the program with generous support from the Bill & Melinda Gates Foundation. In this post, we outline our key research questions and new features of our work over the next three years. Stay tuned for two upcoming DCO requests for proposals (RFPs), one focused on the impacts of digital credit and the other on data privacy.
Digital credit products are expanding and evolving rapidly, increasingly reaching unbanked populations in emerging markets. While anecdotal evidence continues to raise concerns about overindebtedness, misrepresentation of terms, and even fraud, the body of causal evidence on the impacts of digital credit remains limited. To address this, CEGA has managed the Digital Credit Observatory (DCO), with support from the Bill & Melinda Gates Foundation, since 2016. To date, the DCO has supported seventeen studies in twelve countries throughout Africa, Asia, Latin America, and the Caribbean, adding to a growing body of evidence on the impacts — both positive and negative — of digital credit in emerging markets.
A recent synthesis paper released by the DCO reviews this emerging causal evidence, finding high rates of take up — well in excess of traditional microcredit — even though consumers often do not understand the terms of the loans. There remains little evidence of large welfare effects, although two impact evaluations document positive effects on resilience and subjective well-being, respectively. No study documents statistically significant negative impacts of digital credit.
Numerous questions about the promises and pitfalls of these products remain. For example, it appears that for certain products, some borrowers benefit, while others consistently incur late fees, default, engage in loan stacking (growing their indebtedness), or deplete savings. In the coming years, the DCO will dig deeper by studying how the impacts of digital credit vary according to product design features or borrower characteristics, and how products can be improved to better protect and benefit under-served populations.
A new focus on data privacy
In addition to ongoing questions about impact and product design, the next iteration of the DCO will tackle an equally important and similarly vexing challenge: data privacy. The ‘data revolution’ enabled by the widespread adoption of mobile phones has generated optimism about transforming financial services for the underserved. However, digital financial services increasingly rely on access to vast troves of personal data, often considered proprietary to financial service providers and collected from individuals who may not understand the possible risks associated with providing consent to share their data. With limited and inconsistent standards for — and regulation of — data privacy, there is a pressing need to find ways to enable data sharing that facilitates innovation while also respecting the privacy of consumers.
We believe investment in high-quality research is essential to unlock the potential of new sources of data for development applications, while ensuring the privacy of the people behind the data.
In the coming years, the DCO will invest in new research that deepens our understanding of whether and how various privacy-preserving practices can unlock further responsible innovation within financial systems and other technology-enabled services. Specifically, the DCO’s new work on data privacy will investigate questions such as:
- What data privacy approaches are currently being used by financial institutions working in emerging markets? How do these approaches protect consumers (and in which ways may they fall short)?
- How do state-of-the-art technical methods to enhance data privacy apply to real-world applications?
- Can simulations improve our understanding of the tradeoffs between privacy gains for individuals and the accuracy of datasets?
- Could these methods be adapted to improve products and services?
- How can organizations transition their current practices to provide individuals with more data privacy while unlocking innovation through these approaches?
- Are there non-technical approaches to enhancing data privacy protections that could effectively work in practice?
- How could these range of insights improve the development of financial sectors globally?
In the coming months, the DCO will release two separate requests for proposals (RFPs): one focused on the impacts of digital credit and another to support research advancing this data privacy agenda. Our team will continue sharing findings from DCO-funded research, and we look forward to engaging the community (particularly stakeholders in low- and middle-income countries) in partnership and training opportunities.
To stay up to date with the Digital Credit Observatory, submit research proposals, or learn from our work, please visit our website and subscribe to our newsletter.
[1] Digital credit products offer small loans that can be accessed instantly, automatically, and remotely (Chen & Mazer 2016). These digital loans can offer borrowers access to funds even without a formal credit history, and operate in a range of financial systems and markets with limited regulatory oversight.
[2] For example, could this enable ethical use of mobile phone data to improve credit risk assessment and the development of credit bureaus, or social protection targeting via real-time monitoring for more effective pandemic response?
