The Impact of Mobile Credit on Africa’s Socioeconomic Mobility

MIT Sloan’s Tavneet Suri (Louis E. Seley Professor of Applied Economics; Associate Professor, Applied Economics) has spent 10 years studying the use and impact of both “mobile money” and “digital credit” in sub-Saharan Africa, particularly in Kenya, and exploring the impacts of these relatively new economic tools.

Use and Impact of Mobile Money

In her previous work, Suri examined mobile money—a phone-based application (not requiring a “smart” device) developed to enable users without bank accounts to deposit, transfer, and withdraw funds from their mobile phones. She found that mobile money has had profound effects on traditionally “unbanked” populations, allowing them to join in crucial areas of economic activity. The impact was dramatic: mobile money access not only increased household consumption in Kenya but also increased savings, reduced poverty rates, and showed extreme poverty rates declining by a full 2 percentage points (meaning 196,000 households moved out of “extreme poverty”). It also broadened the economic opportunities available to women.

Digital Credit

Her latest work attempts to evaluate the effectiveness of digital credit, and the availability of other financial instruments, in addressing the fundamental financial well-being of populations. As Suri explains it: “When something bad happens, mobile money can bridge the gap.” Access to these services, her work indicates, can provide strategies to prevent relatively small monetary setbacks from becoming full-blown financial disasters for families. In the case of digital credit, a simple phone process allows users to request a loan: automated processes assign a credit score and deposit a requested loan into a mobile money account—all without loan officers or bank branches, reducing costs for banks themselves.

Powerful Potential Outcomes

Suri recently studied 4,200 households—each close to the lower-end cutoff point for eligibility—two years after opening their digital accounts, and discovered two salient results: (1) an increase in “financial resilience and well-being” (i.e., the ability to still make crucial purchases, even in the face of temporary financial setbacks); and (2) an increase in the propensity to spend on education. The latter finding, of course, suggests a whole raft of potential benefits for social mobility.