Working Paper: CEPR ID: DP16013
Authors: Sumit Agarwal; Thomas Kigabo; Camelia Minoiu; Andre F. Silva; Andrea Presbitero
Abstract: 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 data on the universe of loans from a credit register accessible to all lenders, we show that the program improved access to credit, especially in underdeveloped areas, and reduced poverty. The program also generated positive spillovers to the commercial banking sector: a sizable share of first-time borrowers switched to banks, which cream-skim less risky borrowers and grant them larger, cheaper, and longer maturity loans. Switchers have lower default risk than non-switchers and are not riskier than other bank borrowers. Switchers also obtain better loan terms from banks compared to first-time bank borrowers without a credit history. Overall, our results suggest that the microfinance sector - in the presence of a credit reference bureau accessible to all lenders - can play a critical role in screening unbanked borrowers, allowing them to build a credit history and facilitating their transition to commercial banks
Keywords: Access to credit; Microfinance; Unbanked; Credit bureau; Bank loans
JEL Codes: G21; O12; O55
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Microcredit expansion program (E69) | access to credit for unbanked individuals (G21) |
| access to credit for unbanked individuals (G21) | transition to commercial banks (G21) |
| Usaccos (M41) | loans to previously unbanked borrowers (G21) |
| Credit information sharing mechanism (G21) | build credit history at usaccos (G51) |
| transition to commercial banks (G21) | better loan terms (G51) |
| Microfinance institutions + credit reference bureau (G21) | screening unbanked borrowers (G21) |