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Public policy and the promise of digital credit for financial inclusion

Anderson, C. Leigh; Biscaye, Pierre E.; Hayes, Adam L.; Klawitter, Marieka M.; Travis, W. Reynolds

Digital credit products are characterized by a lending process that is instantaneous, automated, and remote. While digital credit has the potential to reach less collateralized, less mobile, and more remote cohorts of borrowers, there are also risks in relying on digital credit for financial inclusion. This paper investigates the digital credit policy environment and the extent to which it may support pro-poor digital credit market development using two types of documents: a set of 23 regulatory documents specifically mentioning either digital or online credit or lending, and another set of 298 informal documents relevant to digital credit based on a systematic web search. After reviewing the literature on the effects of credit expansion and automated credit scoring, we summarize the characteristics of the current digital credit regulatory environment in low- and middle-income countries. Our findings suggest that few regulations specifically target digital credit markets, and that the current regulatory environment may not support the full potential of digital credit to reach historically underserved credit consumers. Most countries do not explicitly target financial inclusion as part of their digital credit policies. However, we do find evidence that informal web documents consider financial inclusion to a greater extent than formal regulatory documents. 

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