We examine the impact of a large-scale microcredit expansion program on financial access and the transition of previously unbanked borrowers to commercial banks. Administrative data on the universe of loans to individuals show that the program improved access to credit, especially in underdeveloped areas. A sizeable share of first-time borrowers who need a second loan switch from microfinance institutions to commercial banks, which cream-skim low-risk borrowers and grant them larger, cheaper, and longer-term loans. These borrowers are not riskier than those already at commercial banks. The microfinance sector, together with well-functioning credit reference bureaus, help mitigate information frictions in credit markets.
WP05/2018
Author
Jel Classification
G21, O12, O55
N° Pages
54
Financial Access Under the Microscope
Abstract
Keywords
Financial inclusion, microfinance, loan expansion programs, credit reference bureau