{
  "title": "Financial Access Under the Microscope",
  "publication": "IMF Working Papers, September 28, 2018",
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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.",
  "sections": [
    {
      "heading": "Summary",
      "content": "- Study examines impact of a large-scale microcredit expansion program on financial access and transition of previously unbanked borrowers to commercial banks.\n- Uses administrative micro-data covering the universe of loans to individuals from a developing country.\n- Main finding: the program significantly increased access to credit, particularly in less developed areas.\n- Effect driven by newly set-up credit cooperatives (U-SACCOs), which grant loans to previously unbanked individuals.\n- A sizable share of first-time borrowers who need a second loan switch to commercial banks.\n- Commercial banks \"cream-skim\" low-risk borrowers and grant them larger, cheaper, and longer-term loans.\n- First-time borrowers who switch are not riskier than similar individuals already at commercial banks and only initially receive smaller loans.\n- Conclusion: the microfinance sector, together with a well-functioning credit reference bureau, help mitigate information frictions in credit markets."
    },
    {
      "heading": "Key Findings and Evidence",
      "content": "- Program outcome: significant increase in access to credit, with stronger effects in less developed areas.\n- Channel: newly established U-SACCOs extend credit to previously unbanked individuals.\n- Borrower transition: notable movement of first-time borrowers to commercial banks when seeking subsequent loans.\n- Commercial banks’ behavior: select low-risk borrowers (\"cream-skim\") and offer larger, cheaper, and longer-term loans compared with initial microcredit.\n- Risk assessment: borrowers switching to commercial banks are not riskier than incumbents at commercial banks; their initial loans from microcredit providers are smaller."
    },
    {
      "heading": "Policy Implications",
      "content": "- Microfinance expansion can expand credit access, especially in underdeveloped regions.\n- Newly formed credit cooperatives (U-SACCOs) play a critical role in onboarding previously unbanked individuals.\n- Well-functioning credit reference bureaus complement microfinance by reducing information frictions and facilitating transitions to commercial banking.\n- Commercial banks’ ability to cream-skim low-risk borrowers suggests the importance of monitoring borrower selection and ensuring broader access to credit terms over time.\n\n---\n\n Content in this bundle\n\n- Financial Inclusion Under the Microscope, WP/18/208, September 2018\n  - Financial Inclusion Under the Microscope, WP/18/208, September 2018 (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - Financial Inclusion Under the Microscope, WP/18/208, September 2018 (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\nSource: https://www.imf.org/en/publications/wp/issues/2018/09/28/financial-inclusion-under-the-microscope-46231"
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    "Authors: Sumit Agarwal, Thomas Kigabo, Camelia Minoiu, Andrea F Presbitero, Andre Silva",
    "Published: September 28, 2018",
    "Series: IMF Working Papers",
    "DOI: https://doi.org/10.5089/9781484376362.001",
    "Study examines impact of a large-scale microcredit expansion program on financial access and transition of previously unbanked borrowers to commercial banks.",
    "Uses administrative micro-data covering the universe of loans to individuals from a developing country.",
    "Main finding: the program significantly increased access to credit, particularly in less developed areas.",
    "Effect driven by 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.",
    "Commercial banks \"cream-skim\" low-risk borrowers and grant them larger, cheaper, and longer-term loans.",
    "First-time borrowers who switch are not riskier than similar individuals already at commercial banks and only initially receive smaller loans.",
    "Conclusion: the microfinance sector, together with a well-functioning credit reference bureau, help mitigate information frictions in credit markets.",
    "Program outcome: significant increase in access to credit, with stronger effects in less developed areas.",
    "Channel: newly established U-SACCOs extend credit to previously unbanked individuals.",
    "Borrower transition: notable movement of first-time borrowers to commercial banks when seeking subsequent loans.",
    "Commercial banks’ behavior: select low-risk borrowers (\"cream-skim\") and offer larger, cheaper, and longer-term loans compared with initial microcredit.",
    "Risk assessment: borrowers switching to commercial banks are not riskier than incumbents at commercial banks; their initial loans from microcredit providers are smaller.",
    "Microfinance expansion can expand credit access, especially in underdeveloped regions.",
    "Newly formed credit cooperatives (U-SACCOs) play a critical role in onboarding previously unbanked individuals.",
    "Well-functioning credit reference bureaus complement microfinance by reducing information frictions and facilitating transitions to commercial banking.",
    "Commercial banks’ ability to cream-skim low-risk borrowers suggests the importance of monitoring borrower selection and ensuring broader access to credit terms over time.",
    "**Financial Inclusion Under the Microscope, WP/18/208, September 2018**"
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