nep-fle 2022-08-15 papers

on Financial Literacy and Education

Issue of 2022‒08‒15
two papers chosen by

Stepping Stone: The Logic of Financial Inclusion through Microcredit in Rural China By Nan Zhou; Wenli Cheng; Longyao Zhang
The Quality of Financial Advice: What Influences Client Recommendations? By Philippe d'Astous; Irina Gemmo; Pierre-Carl Michaud

Stepping Stone: The Logic of Financial Inclusion through Microcredit in Rural China

By:	Nan Zhou (College of Finance, Nanjing Agricultural University); Wenli Cheng (Department of Economics, Monash University); Longyao Zhang (College of Finance, Nanjing Agricultural University)
Abstract:	This paper studies the effect of microcredit on a rural household’s subsequent access to bank loans. Based on a 2018 survey of rural households in 6 Chinese provinces, we find that microcredit served as a stepping stone to bank credit: participation in microcredit improved a household’ probability of obtaining bank loans in the following year by 4.9 percentage points. Notably, the stepping effect was present for both the relatively wealthy households and poor households, if we measure wealth by households’ social capital and assets. We identify two mechanisms behind the stepping stone effect. First, the experience of microcredit instilled confidence in households, which helped to turn their hidden demand for bank credit into effective demand. Second, since microcredit records were included in the National Credit Information System, participation in microcredit in effect enabled households to provide banks with creditable and easily discoverable information about their creditworthiness, which greatly improved their chances of obtaining bank loans.
Keywords:	Microcredit, stepping stone effect, credit graduation, financial inclusion
JEL:	G21 O16
Date:	2022–07
URL:	http://d.repec.org/n?u=RePEc:mos:moswps:2022-15&r=

The Quality of Financial Advice: What Influences Client Recommendations?

By:	Philippe d'Astous; Irina Gemmo; Pierre-Carl Michaud
Abstract:	In this paper, we conduct an experiment with a large sample of financial planner professionals in Canada to elicit factors which may influence client recommendations. Using repeated client vignettes, we find that recommendations are often in-line with what one would expect from economic theory. In particular, advice is sensitive in expected ways to relative costs and benefits of particular options. In some domains, we find evidence that planners are more likely to recommend products they own themselves, their spouse owns, or they are licensed to sell. In the investment domain, we also find that planners are more likely to recommend products that clients inquire about even when this type of solicitation is randomized across clients and options. Finally, we find that planners are systematically sensitive to the gender of the client even when gender is uninformative regarding which recommendation to make.
JEL:	G51 G52 G53
Date:	2022–07
URL:	http://d.repec.org/n?u=RePEc:nbr:nberwo:30205&r=

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