The aim of this study was to measure to determine the impact of the cost of borrowing on loan take-up, the amount borrowed, and repayment rates among microcredit borrowers.
The study was undertaken in partnership with Compartamos Banco, a for-profit, publically-traded bank and the largest microlender in Mexico, to estimate price general-equilibrium, long-run (as well as short-run) price elasticities by randomizing the interest rate offered on its core group ending product, "Credito Mujer." Compartamos randomized at the level of 80 distinct geographic regions throughout Mexico, covering 130 field offices, thousands of borrowing groups, and tens of thousands of borrowers. "Treatment" branches implemented permanent 20 percentage point (pp) reductions in the annual interest rate (on a base of roughly 100% APR), while control branches implemented permanent 10pp reductions. Elasticities were then estimated (along with other treatment effects) using administrative data from Compartamos and credit bureaus over various horizons, for up to 29 months post-treatment.