Financial Access Under the Microscope

Sumit Agarwal, Thomas Kigabo, Camelia Minoiu, Andrea Presbitero and Andre Silva

No 2018/208, IMF Working Papers from International Monetary Fund

Abstract: We examine the impact of a large-scale microcredit expansion program on financial access and the transition of previously unbanked borrowers to commercial banks. Using administrative micro-data covering the universe of loans to individuals from a developing country, we show that the program significantly increased access to credit, particularly in less developed areas. This effect is driven by the newly set-up credit cooperatives (U-SACCOs), which grant loans to previously unbanked individuals. A sizable share of first-time borrowers who need a second loan switch to commercial banks, which cream-skim low-risk borrowers and grant them larger, cheaper, and longer-term loans. These borrowers are not riskier than similar individuals already at commercial banks and only initially receive smaller loans. Our results suggest that the microfinance sector, together with a well-functioning credit reference bureau, help mitigate information frictions in credit markets.

Keywords: WP; interest rate; expansion program; loan Maturity; U-SACCO borrower; bank loan; Financial inclusion; microfinance; loan expansion program; credit reference bureau; loan term; bank-borrower relationship; Loans; Commercial banks; Credit; Credit bureaus; Bank credit; Africa (search for similar items in EconPapers)
Pages: 55
Date: 2018-09-28
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Citations: View citations in EconPapers (5)

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