Serving the Underserved: Microcredit as a Pathway to Commercial Banks

78 Pages Posted: 28 Jul 2021 Last revised: 18 Jun 2022

See all articles by Sumit Agarwal

Sumit Agarwal

National University of Singapore

Thomas Kigabo

National Bank of Rwanda

Camelia Minoiu

Federal Reserve Bank of Atlanta

Andrea Presbitero

International Monetary Fund (IMF); Centre for Economic Policy Research (CEPR)

André F. Silva

Board of Governors of the Federal Reserve System

Multiple version iconThere are 4 versions of this paper

Date Written: July, 2021

Abstract

A large-scale microcredit expansion program---together with a credit bureau accessible to all lenders---can enable unbanked borrowers to build a credit history, facilitating their transition to commercial banks. Loan-level data from Rwanda show the program improved access to credit and reduced poverty. A sizable share of first-time borrowers switched to commercial banks, which cream-skim less risky borrowers and grant them larger, cheaper, and longer-maturity loans. Switchers have lower default risk than non-switchers and are not riskier than other bank borrowers. Switchers also obtain better loan terms from banks compared with first-time bank borrowers without a credit history.

Keywords: Access to credit, Microfinance, Unbanked, credit bureaus, Bank loans

JEL Classification: G21, O12, O55

Suggested Citation

Agarwal, Sumit and Kigabo, Thomas and Minoiu, Camelia and Presbitero, Andrea and Silva, André F., Serving the Underserved: Microcredit as a Pathway to Commercial Banks (July, 2021). FEDS Working Paper No. 2021-41, Available at SSRN: https://ssrn.com/abstract=3894753 or http://dx.doi.org/10.17016/FEDS.2021.041

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 Bank of Atlanta ( email )

1000 Peachtree Street N.E.
Atlanta, GA 30309-4470
United States

Andrea Presbitero

International Monetary Fund (IMF) ( email )

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

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

André F. Silva

Board of Governors of the Federal Reserve System ( email )

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

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