Financial Access Under the Microscope

67 Pages Posted: 7 Oct 2018 Last revised: 8 Jun 2019

See all articles by Sumit Agarwal

Sumit Agarwal

National University of Singapore

Thomas Kigabo

National Bank of Rwanda

Camelia Minoiu

Federal Reserve Board

Andrea Presbitero

International Monetary Fund (IMF)

André F. Silva

Federal Reserve Board

Multiple version iconThere are 2 versions of this paper

Date Written: June 06, 2019

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 data on the universe of loans from a credit register accessible to all lenders, we show that the program improved access to credit, especially in underdeveloped areas, with positive effects on business and mortgage lending. The program also generated positive spillovers to the commercial banking sector. As the newly-created microfinance institutions (MFIs) faced lending constraints, a sizable share of first-time borrowers obtained subsequent loans--that were larger, cheaper, and longer-term--from commercial banks, which expanded their branch network in under-served low-risk areas. The individuals switching from MFIs to banks were less risky than non-switchers and not riskier than existing bank borrowers. Overall, our results suggest that the microfinance sector, coupled with a credit reference bureau, can mitigate information frictions in credit markets and serves as a pathway for first-time borrowers to commercial banks.

Keywords: Financial Inclusion, Microfinance, Loan Expansion Programs, Credit Reference Bureau

JEL Classification: G21, O12, O55

Suggested Citation

Agarwal, Sumit and Kigabo, Thomas and Minoiu, Camelia and Presbitero, Andrea and Silva, André F., Financial Access Under the Microscope (June 06, 2019). Available at SSRN: https://ssrn.com/abstract=3247796 or http://dx.doi.org/10.2139/ssrn.3247796

Sumit Agarwal

National University of Singapore ( email )

15 Kent Ridge Drive
Singapore, 117592
Singapore
8118 9025 (Phone)

HOME PAGE: http://www.ushakrisna.com

Thomas Kigabo

National Bank of Rwanda ( email )

Rwanda

Camelia Minoiu (Contact Author)

Federal Reserve Board ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Andrea Presbitero

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

André F. Silva

Federal Reserve Board ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

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