Working Paper: NBER ID: w19106
Authors: Dean Karlan; Jonathan Zinman
Abstract: The long-run price elasticity of demand for credit is a key parameter for intertemporal modeling, policy levers, and lending practice. We use randomized interest rates, offered across 80 regions by Mexico's largest microlender, to identify a 29-month dollars-borrowed elasticity of -1.9. This elasticity increases from -1.1 in year one to -2.9 in year three. The number of borrowers is also elastic. Credit bureau data does not show evidence of crowd-out. Competitors do not respond by reducing rates, perhaps because Compartamos' profits are unchanged. The results are consistent with multiple equilibria in loan pricing.
Keywords: price elasticity; credit demand; microfinance; field experiment; Mexico
JEL Codes: E43; G21; O11; O12
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Interest rate reduction (E43) | Quantity of credit demanded (E41) |
| Interest rate reduction (E43) | Number of borrowers (G51) |
| Increase in number of borrowers (G51) | Access to credit (G21) |
| Interest rate reduction (E43) | Profits (D33) |
| Interest rate reduction (E43) | Competitors' rates (L11) |