Screening with Cash Deposits in Digital Credit Markets

Paul Gertler, Brett Green and Catherine Wolfram

No 35001, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We study a loan contract that requires borrowers to make a temporary cash deposit prior to disbursement, which is fully refunded and does not alter repayment incentives. In a randomized controlled trial with a digital lender, applicants are offered otherwise identical loans with or without a deposit. The deposit requirement reduces loan take-up but substantially improves repayment and lender profitability. The results indicate that deposits screen borrowers on both observable and unobservable characteristics. Higher-risk borrowers are less likely to take up deposit loans, and among borrowers with the same observable risk profile, those who accept deposit loans repay at higher rates, with the largest differences among low-risk borrowers. These findings show that simple contract features can complement data-driven credit models by adding an additional screening margin.

JEL-codes: G23 G51 O16 (search for similar items in EconPapers)
Date: 2026-03
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