Financial Access Under the Microscope

56 Pages Posted: 15 Nov 2018

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: September 2018

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: Microfinance, Africa, Financial inclusion, loan expansion program, credit reference bureau, Microeconomic Analyses of Economic Development

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 (September 2018). IMF Working Paper No. 18/208. Available at SSRN: https://ssrn.com/abstract=3285214

Sumit Agarwal (Contact Author)

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

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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