Borrower leakage from costly screening: Evidence from SME lending in Peru

Irani Arráiz, Miriam Bruhn, Benjamin N. Roth, Claudia Ruiz-Ortega and Rodolfo Stucchi

Journal of Development Economics, 2021, vol. 153, issue C

Abstract: We provide evidence that commercial lenders in Peru suffer leakages in their loan approval process. Leveraging a discontinuity in the loan approval process of a large bank, we find that receiving a loan approval from the bank causes loan applicants to receive offers from other financial institutions as well. Competing lenders captured almost three quarters of the new loans to previously financially excluded borrowers. Importantly, many of these borrowers never took a loan from our partner bank, even after our partner bank approved them. Lenders may therefore underinvest in screening new borrowers and expanding financial inclusion, as their competitors reap some of the benefit. Our results highlight that information spillovers between lenders may operate outside of credit registries.

Keywords: Information spillovers; SME Lending; Banking; Financial inclusion (search for similar items in EconPapers)
JEL-codes: G21 O1 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:deveco:v:153:y:2021:i:c:s0304387821000924

DOI: 10.1016/j.jdeveco.2021.102719

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