Savings-and-Credit Contracts

Bernardus Van Doornik, Armando Gomes, David Schoenherr and Janis Skrastins

No 610, Working Papers Series from Central Bank of Brazil, Research Department

Abstract: In this paper, we present a Savings-and-Credit Contract (SCC) design that mandates a savings period with a default penalty before providing credit. We demonstrate that SCCs mitigate adverse selection and can outperform traditional loan contracts amidst information frictions, thereby expanding access to credit. Empirical evidence from a financial product incorporating an SCC design supports our theory. While appearing riskier on observables, we observe lower realized default rates for product participants than for bank borrowers. Further consistent with the theory, a reform that reduces the default penalty during the savings period induces worse selection and higher realized default rates.

Date: 2024-12
New Economics Papers: this item is included in nep-cta, nep-exp and nep-rmg
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www.bcb.gov.br/content/publicacoes/WorkingPaperSeries/WP610.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bcb:wpaper:610

Access Statistics for this paper

More papers in Working Papers Series from Central Bank of Brazil, Research Department
Bibliographic data for series maintained by Rodrigo Barbone Gonzalez ().