Microentrepreneurs around the world utilize informal credit at exorbitant interest rates. Many of these entrepreneurs have access to, but do not utilize microfinance because the timing of their cash flows does not match the microfinance repayment schedules. We are evaluating the impact of a short-term working capital credit product meant to flexibly match the cash flows of market vendors at interest rates significantly above microcredit but far below the informal sources of credit utilized in these markets. We will evaluate the efficacy of community nominations, formal credit histories, and self reported business characteristics in identifying entrepreneurs with high-growth opportunities and reliable credit risks.
In contrast to traditional microfinance, there is no group element or joint liability associated with this credit product. As such, identifying good borrowers, both those who are likely to repay their loans as well as those who are likely to have high-growth opportunities, presents novel challenges. Alongside evaluating the impact of the credit product, we will evaluate the usefulness of three sources of information for targeting entrepreneurs. 1) Nominations from neighboring vendors (Hussam et al. 2022), 2) Formal credit histories, 3) Self reported business characteristics and investment opportunities.