Financial Access Under the Microscope

By Sumit Agarwal, Thomas Kigabo, Camelia Minoiu, Andrea F Presbitero, Andre Silva

September 28, 2018

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Sumit Agarwal, Thomas Kigabo, Camelia Minoiu, Andrea F Presbitero, and Andre Silva. Financial Access Under the Microscope, (USA: International Monetary Fund, 2018) accessed September 18, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

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.

Subject: Bank credit, Banking, Commercial banks, Credit, Credit bureaus, Financial institutions, Financial markets, Loans, Money

Keywords: Africa, Bank credit, Bank loan, Bank-borrower relationship, Commercial banks, Credit, Credit bureaus, Credit reference bureau, Expansion program, Financial inclusion, Interest rate, Loan expansion program, Loan Maturity, Loan term, Loans, Microfinance, U-SACCO borrower, WP

Publication Details

Pages:

55
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2018/208
Stock No:

WPIEA2018208
ISBN:

9781484376362
ISSN:

1018-5941

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