Financial Access Under the Microscope
67 Pages Posted: 7 Oct 2018 Last revised: 8 Jun 2019
Date Written: June 06, 2019
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: Suggested Citation