The Supply- and Demand-Side Impacts of Credit Market Information in Guatemala

2004-06-01

2004-11-01

Impact of the credit bureau on screening borrowers in and out:

- Fraction leaving

- Fraction entering


Loan performance of checked and ejected borrowers:

- Internal performance prior to Crediref

- External performance on loans seen in bureau


Impact of screening on individual client composition.

- Impact on borrower characteristics


Impact of screening on the extensive margin: performance of new clients:

- Performance of first loan:

(Late fees > 1% of principal / Loan more than 2 months delinquent / Average loan size per borrower (US$))

- Future behavior:

(Probability of taking subsequent loan / Months until subsequent loan taken / Growth of subsequent loan per borrower)


Impact of screening on the intensive margin: performance of ongoing borrowers:

- Late fees > 1% of principal

- Loan more than 2 months delinquent

- Average loan size per borrower (US$)


Aggregate effect of use of the bureau for screening on credit agent performance:

- New clients per month

- Loans per months

- Loan performance


Impact of information on performance:

- Solidarity Group loans

(Delinquent payment / Amount of late fees (US$) / Late fees > 1% of principal / Loan more than 2 months delinquent)

- Communal Bank loans

(Delinquent payment / Amount of late fees (US$) / Late fees > 1% of principal / Loan more than 2 months delinquent)

The aim of this study was to analyze how lending outcomes have responded to the introduction of a credit bureau in Guatemala's microfinance market. In August 2001, a major microfinance lender began to install hardware permitting branches to communicate information with the bureau, but did not inform borrowers of the use of the bureau. A randomized training campaign was conducted in which 5000 borrowers were informed of the use of the system, how the bureau worked, and the opportunities and risks it presented for them. Institutional data from the lender and bureau was then used to track how a variety of lending outcomes emerged from this structure in which asymmetric information was reduced on the two sides of the market at two different points in time. It was thus possible to disentangle the supply- and demand-side impacts of credit market information, and identify separately the roles of adverse selection, moral hazard, and incentives on group composition.

Randomization was conducted in an office on a computer.

Levels of Randomization:

individual bank branches

individual borrowing groups (referred to as "solidarity groups")

individual loans

Yes

treatment and control data collected from 7 bank branches (other data collected from all 39 bank branches)

1040 borrowing groups

7 bank branches, 1040 borrowing groups

573 borrowing groups treatment

467 borrowing groups control

We utilize a unique pair of experiments to isolate the ways in which reductions in asymmetric information alter credit market outcomes. A Guatemalan microfinance lender gradually started using a credit bureau across its branches without letting borrowers know about it. One year later, we ran a large randomized credit information course that described the existence and workings of the bureau to the clients of this lender. This pairing of natural and randomized experiments allows us to separately identify how new information enters on the supply and the demand sides of the market. Our results indicate that the credit bureau generated large efficiency gains for the lender, and that these gains were augmented when borrowers understood the rules of the game. The credit bureau rewarded good borrowers but penalized weaker ones, increasing economic differentiation.

De Janvry, Alain, Craig McIntosh, and Elisabeth Sadoulet. 2010. "The Supply- and Demand-Side Impacts of Credit Market Information." Journal of Development Economics 93(2): 173-188.

http://www.sciencedirect.com/science/article/pii/S0304387809000984