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Full-Text Articles in Social and Behavioral Sciences
Do Risky Microfinance Borrowers Really Invest In Risky Projects? Experimental Evidence From Bolivia., Eliana Zeballos, Alessandra Cassar, Bruce Wydick
Do Risky Microfinance Borrowers Really Invest In Risky Projects? Experimental Evidence From Bolivia., Eliana Zeballos, Alessandra Cassar, Bruce Wydick
Economics
This paper reports the results of an experiment designed to test a fundamental assumption in Stiglitz and Weiss (1981) model of credit rationing, that defaulting borrowers are associated with investment in risky projects. Through an artefactual field experiment with 200 Bolivian microfinance borrowers, we observe that subjects from real-world delinquent borrowing groups do not prefer risky projects to safer ones significantly more than subjects from repaying groups. Moreover, when faced with the choice between two options framed as consumption or a relatively safe investment project, risky borrowers significantly opt more for consumption, supporting more recent behavioral theories of credit market …
Credit Rationing With Behavioral Foundations: Revisiting Stiglitz And Weiss, Alessandra Cassar, Bruce Wydick
Credit Rationing With Behavioral Foundations: Revisiting Stiglitz And Weiss, Alessandra Cassar, Bruce Wydick
Economics
The seminal credit market model of Stiglitz and Weiss (1981) proposes that asymmetric information between borrowers and lenders creates a moral hazard in which borrowers to have an incentive to invest in risky projects, creating the basis for a rationing equilibrium in credit markets. Other recent behavioral work, argues that a different type of behavior is more central to credit market risk: the temptation for borrowers to use borrowed capital to meet short-term consumption needs rather than for productive investment (Banerjee and Mullainathan, 2010). In this note, we present a simple model that is able to explain credit rationing where …
What Do Credit Bureaus Do? Understanding Screening, Incentive, And Credit Expansion Effects, Craig Mcintosh, Bruce Wydick
What Do Credit Bureaus Do? Understanding Screening, Incentive, And Credit Expansion Effects, Craig Mcintosh, Bruce Wydick
Economics
We develop a theoretical model that explains the primary empirical results emanating from a multi-year study of the impact of credit bureaus in Guatemala. Our theory derives “screening” and “incentive” effects of credit information systems that mitigate problems of adverse selection and moral hazard in credit markets. We also derive a “credit expansion” effect in which borrowers with clean credit records receive larger and more favorable equilibrium loan contracts. The credit expansion effect increases default rates, partially counteracting the first two effects. We create a simulation model that allows us to examine the relative magnitudes of these effects in relation …
Credit Information Systems In Less Developed Countries: A Test With Microfinance In Guatemala, Jill Luoto, Craig Mcintosh, Bruce Wydick
Credit Information Systems In Less Developed Countries: A Test With Microfinance In Guatemala, Jill Luoto, Craig Mcintosh, Bruce Wydick
Economics
Increases in formal sector lending among the poor have created a need for credit information systems that provide potential lenders both positive and negative data about borrowers. In this paper we provide an overview of the development and use of credit information systems in industrialized and developing countries. The paper subsequently presents a test of the effects of a newly implemented credit information system using fixed effects estimation on panel data from Guatemala. Results indicate that improved screening effects from the system caused the level of portfolio arrears to decline between 2 and 3.5 percentage points six months after it …
Competition And Microfinance, Craig Mcintosh, Bruce Wydick
Competition And Microfinance, Craig Mcintosh, Bruce Wydick
Economics
Competition between microfinance institutions (MFIs) in developing countries has increased dramatically in the last decade. We model the behavior of non-profit lenders, and show that their non-standard, client-maximizing objectives cause them to cross-subsidize within their pool of borrowers. Thus when competition eliminates rents on profitable borrowers, it is likely to yield a new equilibrium in which poor borrowers are worse off. As competition exacerbates asymmetric information problems over borrower indebtedness, the most impatient borrowers begin to obtain multiple loans, creating a negative externality that leads to less favorable equilibrium loan contracts for all borrowers.