Resource title

Expanding credit access: using randomized supply decisions to estimate the impacts

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Resource description

Expanding credit access is a key ingredient of development strategies worldwide. Microfinance practitioners, policymakers, and donors have ambitious goals for expanding access, and seek efficient methods for implementing and evaluating expansion. There is less consensus on the role of consumer credit in expansion initiatives. Some microfinance institutions are moving beyond entrepreneurial credit and offering consumer loans. But many practitioners and policymakers are skeptical about unproductive lending. These concerns are fueled by academic work highlighting behavioral biases that may induce consumers to over borrow. We estimate the impacts of a consumer credit supply expansion using a field experiment and followup data collection. A South African lender relaxed its risk assessment criteria by encouraging its loan officers to approve randomly selected marginal rejected applications. We estimate the resulting impacts using new survey data on applicant households and administrative data on loan repayment, as well as public credit reports one and two years later. We find that the marginal loans produced significant benefits for borrowers across a wide range of economic and wellbeing outcomes. We also find some evidence that the marginal loans were profitable for the Lender. The results suggest that consumer credit expansions can be welfare-improving.

Resource author

Dean S. Karlan, Jonathan Zinman

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Resource publish date

Resource language

eng

Resource content type

text/html

Resource resource URL

http://hdl.handle.net/10419/26995

Resource license

Adapt according to the presented license agreement and reference the original author.