nep-mfd New Economics Papers
on Microfinance
Issue of 2018‒10‒29
one paper chosen by
Olivier Dagnelie
Université de Caen

  1. Financial Inclusion Under the Microscope By Sumit Agarwal; Thomas Kigabo; Camelia Minoiu; Andrea Presbitero; Andre Silva

  1. By: Sumit Agarwal; Thomas Kigabo; Camelia Minoiu; Andrea Presbitero; Andre Silva
    Abstract: We examine the impact of a large-scale microcredit expansion program on access to finance and the transition of first-time borrowers from microfinance institutions to the formal banking sector. 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. About 10\% of first-time U-SACCO borrowers that need a second loan switch to the formal banking sector, with commercial banks cream-skimming less risky borrowers from U-SACCOs and granting them larger, cheaper, and longer-term loans. These borrowers are not riskier than similar individuals already in the formal banking sector 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.
    Date: 2018–09–28

This nep-mfd issue is ©2018 by Olivier Dagnelie. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.