Liquidity or Convenience? Heterogeneous Impacts of Mobile Airtime Loans on Communication Expenditure

• Development Workshop

Date and Location

Tuesday, November 17, 2020, 4:10 PM - 5:30 PM
933 988 20491, online Zoom

Abstract

Algorithmic insights from individual meta data have enabled a proliferation of mobile financial services
to cellphone users in markets where information asymmetries and high provision costs tend to deter
formal financial institutions. As the first such financial product typically offered to new users, airtime
loans provide prepaid customers small airtime advances for a fee as an alternative to recharges
purchased from network agents. Relying on rich administrative data from a mobile network operator in
Haiti, we study the impact of airtime loans on consumer expenditure and network usage. We find that
access to loans increases total communication expenditure by 16\% due to a crowding-in of additional
network usage. This expenditure response to airtime loans is distinctly heterogeneous. Poorer
customers in the lowest tercile of initial expenditure more than double their mobile communication
spending when airtime loans become available, while access to loans leaves expenditure of the highest
tercile unchanged. These differences in the expenditure impacts of airtime loans exist despite relatively
uniform patterns of loan usages between the poor and non-poor. We find suggestive evidence that
these differences are driven by distinct motivations for requesting airtime loans: Poorer customers
appear to use loans to relax liquidity constraints at critical communication times whereas non-poor
customers primarily use these loans for convenience, as it gives them more discretion in when to visit
airtime vendors.