Digital Collateral

73 Pages Posted: 10 Apr 2021 Last revised: 6 May 2021

See all articles by Paul J. Gertler

Paul J. Gertler

University of California, Berkeley - Haas School of Business; National Bureau of Economic Research (NBER)

Brett Green

Washington University in St. Louis - John M. Olin Business School

Catherine D. Wolfram

University of California, Berkeley - Economic Analysis & Policy Group; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: May 5, 2021

Abstract

A new form of secured lending utlitizing ``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. We find that 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 and find that roughly one-third is attributable to (ex-ante) adverse selection and two-thirds is attributable to (interim or ex-post) moral hazard. Access to school-fee loans significantly increases school enrollment and school-related expenditures without detrimental effects to households' balance sheet.

Keywords: Collateralized Lending, Microfinance, Moral Hazard, Adverse Selection, Education

JEL Classification: G20, I22, O16

Suggested Citation

Gertler, Paul J. and Green, Brett and Wolfram, Catherine D., Digital Collateral (May 5, 2021). Available at SSRN: https://ssrn.com/abstract=3821998 or http://dx.doi.org/10.2139/ssrn.3821998

Paul J. Gertler

University of California, Berkeley - Haas School of Business ( email )

545 Student Services Building, #1900
2220 Piedmont Avenue
Berkeley, CA 94720
United States
510-642-1418 (Phone)
510-642-4700 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Brett Green (Contact Author)

Washington University in St. Louis - John M. Olin Business School ( email )

One Brookings Drive
Campus Box 1133
St. Louis, MO 63130-4899
United States

Catherine D. Wolfram

University of California, Berkeley - Economic Analysis & Policy Group ( email )

Berkeley, CA 94720
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
111
Abstract Views
430
rank
294,643
PlumX Metrics