Conscious or unconscious digitalised credit decisions? An application of the dual-system theory to agricultural finance and welfare

There are two systems according to the dual-system theory that influence human decision-making processes in psychology classified as system one and system two. These systems impact human cognition and behaviour and results in actions that are either unconsciously or consciously taken. In the first system, decisions are not the results of deliberate reasoning but default and often intuitive, offering quick but not rational and consistent results. Alternatively, the second system is controlled and deliberate and as such dominates the default system under time sufficiency. Despite the several initiatives to make credit available to farmers, commercial banks consider the agricultural sector risky and informal, with a high cost of holding capital. This result in farmers depending on costly loans from informal sectors that aggravate their debt situations, and restrict their ability to invest in productivity-enhancing inputs. Digitalized microcredit offers farmers alternatives and broad possibilities to access credit with improved efficiency and capable of reaching several underserved rural farming communities. This study therefore intends to examine the effects of digitalized credit on the welfare of farmers using ordinary least square approach and corroborated with Propensity Score Matching (PSM) as a robustness check. The findings indicate that digital financial services increased the income and welfare of rural households, as it provided an accessible and more formalized means of financial support. The research also confirmed the dual-system theory posits that deliberate and conscious decisions, the results of system two lead to reasonable and beneficial outcomes as shown by the welfare indicator in the treatment effects analysis.