Working Paper: NBER ID: w18096
Authors: Raymond Fisman; Daniel Paravisini; Vikrant Vig
Abstract: We present evidence that shared codes, religious beliefs, ethnicity - cultural proximity - between lenders and borrowers improves the efficiency of credit allocation. We identify in-group preferential treatment using dyadic data on the religion and caste of bank officers and borrowers from a bank in India, and a rotation policy that induces exogenous matching between officers and borrowers. Cultural proximity increases lending on both intensive and extensive margins and improves repayment performance, even after the in-group officer is replaced by an out-group one. Further, cultural proximity increases loan dispersion and reduces loan to collateral ratios. Our results imply that cultural proximity mitigates informational problems that adversely affect lending, which in turn relaxes financial constraints and improves access to finance.
Keywords: No keywords provided
JEL Codes: D82; G21; J15
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| cultural proximity (Z10) | total credit outstanding (E51) |
| cultural proximity (Z10) | number of borrowers (G51) |
| cultural proximity (Z10) | probability of receiving credit (G51) |
| cultural proximity (Z10) | repayment performance (F34) |
| cultural proximity (Z10) | collateral ratios (G32) |
| cultural proximity (Z10) | dispersion of lending (G21) |