Working Paper: CEPR ID: DP6407
Authors: Dean S. Karlan; Jonathan Zinman
Abstract: Expanding credit access is a key ingredient of development strategies worldwide. Microfinance practitioners, policymakers, and donors have ambitious goals for expanding access, and seek efficient methods for implementing and evaluating expansion. There is less consensus on the role of consumer credit in expansion initiatives. Some microfinance institutions are moving beyond entrepreneurial credit and offering consumer loans. But many practitioners and policymakers are skeptical about ?unproductive? lending. These concerns are fuelled by academic work highlighting behavioural biases that may induce consumers to overborrow. We estimate the impacts of a consumer credit supply expansion using a field experiment and follow-up data collection. A South African lender relaxed its risk assessment criteria by encouraging its loan officers to approve randomly selected marginal rejected applications. We estimate the resulting impacts using new survey data on applicant households and administrative data on loan repayment, as well as public credit reports one and two years later. We find that the marginal loans produced significant benefits for borrowers across a wide range economic and well-being outcomes. We also find some evidence that the marginal loans were profitable for the Lender. The results suggest that consumer credit expansions can be welfare-improving.
Keywords: Consumer Credit; Credit Impact; Microfinance
JEL Codes: D1; D9; J2; J6; O1
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| expanded credit access (H81) | improved welfare (I30) |
| expanded credit access (H81) | higher incomes (J39) |
| expanded credit access (H81) | lower instances of hunger (I32) |
| expanded credit access (H81) | increased employment likelihood (J68) |
| expanded credit access (H81) | lender profitability (G21) |
| expanded credit access (H81) | increase in stress levels (I31) |