P o l i c i e s a n d I n s t i t u t i o n s t h a t D i s t o r t R e s o u r c e A l l o c a t i o n i n S u b - S a h a r a n A f r i c a
M-Shwari loan is about US$12 with maturity of no more than 30 days (Cook and McKay 2015). Users are charged a fixed facilitation fee (instead of an interest rate). These fees are typically high—for instance, a monthly fee of 7.5 percent for M-Shwari (or 138 percent annually), or 10 percent per week for some Malawian digital loans (an annualized rate of 1,000 percent). Repayment of digital loans on time raises the probability of the user being granted larger loans with lower fees and longer maturity. It remains an open question whether the uptake of digital loans would decline if borrowers had more information on these products or were already fully informed about their costs (Francis, Blumenstock, and Robinson 2017). Access to credit among women entrepreneurs is more restricted than among men because of inequality in the ownership of fixed assets (say, land or property) to serve as collateral to secure loans. However, developments in the financial technology industry can be harnessed to unlock the collateral challenge facing women entrepreneurs. Psychometric loan appraisal technologies— which predict the likelihood of loan repayment by entrepreneurs—have been used as an alternative to traditional collateral in Ethiopia (Alibhai et al. 2018). Specifically, they test the ability (business skills and intelligence) and willingness (ethics, honesty, attitudes, and beliefs) to repay a loan. Borrowers take an interactive, tablet-based test consisting of games, puzzles, and questions. If they score above a certain cutoff, they can obtain an uncollateralized loan of up to US$7,500. Customers scoring at a high threshold on the psychometric test were seven times more likely than lower-performing customers to repay their loans. This pilot is being currently scaled up in Madagascar and Zimbabwe and will be implemented next in Côte d’Ivoire, Nigeria, and Zambia. In the absence of collateral, and with limited information available on the creditworthiness of women borrowers, psychometric testing is a promising solution. Finally, cash still dominates the transactions of many of the world’s poor despite the
increased use of digital financial services. In this context, efforts to foster digital literacy would help potential users to understand the interface with digital financial systems. Training sessions to understand the benefits of digital financial products and, more importantly, how to use them will increase the uptake of digital accounts and deposits (Holloway, Niazi, and Rouse 2017).
Notes 1. The selection channel also involves distortions that can affect individuals’ occupational choices, such as (a) joining the formal sector as an entrepreneur (instead of as an informal entrepreneur or worker); and (b) agriculture versus nonagriculture jobs. 2. So far, the academic literature has identified some factors that can account for large effects of misallocation in agriculture; however, that is not the case for the extent of misallocation found in manufacturing (Restuccia and Rogerson 2017). 3. Revenue total factor productivity (TFPR) is typically defined as the ratio of firms’ sales (or revenues) to input costs (appropriately weighted by their production elasticities). The marginal product of land is the additional output gained from adding another unit of land. This might apply to a farmer who purchases a field adjacent to the existing property or to a factory owner who increases the square footage of a facility. 4. Restuccia and Santaeulàlia-Llopis (2017) use the 2010–11 Malawi Integrated Survey of Agriculture (ISA). This survey has ample information on agricultural production (physical amounts by drop and plot) and the inputs used in all agricultural activities at the plot level. The data are representative at the national level, with a sampling frame based on the census and an original sample that includes 12,271 households (56,397 individuals), of whom 81 percent live in rural areas. Household land is measured as the sum of the size of each cultivated household plot, including rented-in land (about 12.5 percent of all cultivated land). Household farms, on average, cultivate 1.8 plots. Plot size is recorded in acres using the Global Positioning System (GPS) for 98 percent of plots. For each household, the amount of the land used for
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