Financial Access Under the Microscope
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Summary:
We examine the impact of a large-scale microcredit expansion program on financial access and the transition of previously unbanked borrowers to commercial banks. Using administrative micro-data covering the universe of loans to individuals from a developing country, we show that the program significantly increased access to credit, particularly in less developed areas. This effect is driven by the newly set-up credit cooperatives (U-SACCOs), which grant loans to previously unbanked individuals. A sizable share of first-time borrowers who need a second loan switch to commercial banks, which cream-skim low-risk borrowers and grant them larger, cheaper, and longer-term loans. These borrowers are not riskier than similar individuals already at commercial banks and only initially receive smaller loans. Our results suggest that the microfinance sector, together with a well-functioning credit reference bureau, help mitigate information frictions in credit markets.
Series:
Working Paper No. 2018/208
Subject:
Bank credit Banking Commercial banks Credit Credit bureaus Financial institutions Financial markets Loans Money
English
Publication Date:
September 28, 2018
ISBN/ISSN:
9781484376362/1018-5941
Stock No:
WPIEA2018208
Pages:
55
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