## Financial Access Under the Microscope

_IMF Working Papers, September 28, 2018_

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**Canonical URL:** [Financial Access Under the Microscope](https://www.imf.org/en/publications/wp/issues/2018/09/28/financial-inclusion-under-the-microscope-46231)

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- [Markdown version](/en/publications/wp/issues/2018/09/28/financial-inclusion-under-the-microscope-46231/index.md)
- [Structured JSON version](/en/publications/wp/issues/2018/09/28/financial-inclusion-under-the-microscope-46231/index.json)
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## Bibliographic details
- 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

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### Summary
- 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.

### Key Findings and Evidence
- 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.

### Policy Implications
- 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.

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## Content in this bundle

- **Financial Inclusion Under the Microscope, WP/18/208, September 2018**
  - [Financial Inclusion Under the Microscope, WP/18/208, September 2018 (Markdown version)](/-/media/files/publications/wp/2018/wp18208.pdf.md){rel="alternate" type="text/markdown"}
  - [Financial Inclusion Under the Microscope, WP/18/208, September 2018 (PDF)](/-/media/files/publications/wp/2018/wp18208.pdf){rel="external" type="application/pdf"}

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_Source: https://www.imf.org/en/publications/wp/issues/2018/09/28/financial-inclusion-under-the-microscope-46231_