Serving the Underserved: Microcredit as a Pathway to Commercial Banks

Sumit Agarwal, Thomas Kigabo, Camelia Minoiu, Andrea Presbitero and André F. Silva
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Sumit Agarwal: National University of Singapore
Thomas Kigabo: National Bank of Rwanda
André F. Silva: Federal Reserve Board

The Review of Economics and Statistics, 2023, vol. 105, issue 4, 780-797

Abstract: A large-scale microcredit expansion program—together with a credit bureau accessible to all lenders—can enable unbanked borrowers to build a credit history, facilitating their transition to commercial banks. Loan-level data from Rwanda show the program improved access to credit and reduced poverty. A sizable share of first-time borrowers switched to commercial banks, which cream-skim less risky borrowers and grant them larger, cheaper, and longer-maturity loans. Switchers have lower default risk than nonswitchers and are not riskier than other bank borrowers. Switchers also obtain better loan terms from banks compared with first-time bank borrowers without a credit history.

Date: 2023
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Working Paper: Serving the Underserved: Microcredit as a Pathway to Commercial Banks (2021)
Working Paper: Serving the Underserved: Microcredit as a Pathway to Commercial Banks (2021)
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