Credit Screening with Cash Deposits

Paul Gertler, Brett Green and Catherine Wolfram

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

Abstract: We study a cash loan contract that requires borrowers to make a cash deposit prior to disbursement. The deposit is credited toward the loan principal at disbursement and does not alter repayment incentives. In a randomized controlled trial, we find that the deposit requirement reduces loan take-up but selects borrowers who repay substantially better, raising lender profits. The deposit screens borrowers on both observable and latent characteristics: high-risk borrowers are less likely to take deposit loans and, controlling for all observables, deposit-loan takers repay at a higher rate, particularly among low-risk borrowers.

JEL-codes: G23 G51 O16 (search for similar items in EconPapers)
Date: 2026-03
New Economics Papers: this item is included in nep-exp, nep-mfd and nep-pay
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