The Digital Age of Finance: Is Digital Credit a Better Solution Than Microcredit?

by Darwin on December 7, 2018

How can the impoverished truly get ahead? No matter our financial status, we all have dreams and goals, not to mention the drive to take care of ourselves and our loved ones. Fortunately, financial solutions especially for low-income have been created which may address the world’s inequities in forging a path forward. Digital credit and microcredit are two examples of this. But is one better than the other?

What is Digital Credit? What Is Microcredit?

Digital credit is typically for people with little access to formal credit or no credit history. The statistics on who uses digital credit tell us that digital credit isn’t always used for business purposes. In Tanzania, for instance, less than half of digital borrowers put that money toward their careers. When you apply instant credit online with ePay Later, you can even top up airtime for your phone, which is another very common use worldwide. Ultimately, people use it to cover everyday expenses, while still securing other types of loans.

Microcredit is thought to have originated in Bangladesh more than forty years ago. Unlike digital credit, which is widely used for a variety of purposes, microcredit seems to be targeted toward making low-income people more self-sufficient and improving quality of life. It can help them leverage their skills and parlay it into a business. Microcredit case studies often include people living in poor conditions who receive a small loan (sometimes just the equivalent of several US dollars) and use it to build a business centered around a trade.

Which Is Better?

Since digital credit is a newer solution, many are curious to see how it stacks up next to microcredit. Because traditional banks and loans are not as prevalent as mobile phones in some parts of the world, the appeal of digital credit is clear.

With digital credit, an indigent person or small business owner in a developing nation does not need to concern themselves with a brick-and-mortar bank, or a financial institution that was not founded to serve them. They also do not need to worry over complicated paperwork that they and their peers have no experience with. They can procure digital lending easily on their mobiles.

This hasn’t always been the case with microcredit, which predates the mobile explosion. Locating the source of funds associated with microcredit has not, and is not, always as simple as hitting a few buttons. But that is changing now as well, as we can consider digital credit a natural progression from microcredit. Therefore, one is not necessarily better than the other, although we always know where digital credit lives – on the mobile.

In the end, the ease with which digital credit can be procured may be the reason why we see it used for wider purposes than microcredit, historically. It may be a better solution for those who need a quick cash injection for an emergency, or a utility bill. While both carry risks for the borrower, lenders may look to expand offerings in the future, as the small amount of money doesn’t pose as great a risk to lenders as traditional loans and credit lines.


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