Last registered on February 24, 2019

Trial Information

Affiliation

Instituto Tecnologico Autonomo de Mexico

Status

Completed

Start date

2007-03-01

End date

2019-01-01

Keywords

Additional Keywords

Secondary IDs

Abstract

We provide evidence on why large financial institutions in developing economies have had difficulties expanding formal sector credit. Using detailed credit data and a product that accounted for 15% of all first-time formal loans, we show that borrowers new to formal credit default at high rates and generate ex-ante unpredictable revenue. Using a large country-wide experiment, we show that expost contract terms do little to mitigate risk, implying moral hazard is not a primary cause of default. Failing to make its flagship financial inclusion product profitable, the bank eventually discontinued it.

External Link(s)

Citation

Bejarano, Enrique Seira et al. 2019. "The Difficulties of Financial Inclusion via Large Banks:
Evidence from Mexico." AEA RCT Registry. February 24. https://www.socialscienceregistry.org/trials/3941/history/41966

Experimental Details

Intervention(s)

The experiment was designed and implemented by the Bank without the participation of the researchers.

We use detailed data from a large commercial Mexican bank and a product (the study card) that accounted for 15\% of first-time loans nation-wide in 2010. Card holders were chosen subject to the additional constraint that they had paid at least the minimum amount due in each of the six months prior to (and including) January 2007. This left the bank with a sampling frame of about one million clients from which the study sample was drawn. The sampling frame was partitioned into nine strata based on tenure with the bank and payment behavior (each taking on three values), which the bank uses internally as predictors of default. The bank then randomly selected a sample of 18,000 clients per stratum. We use stratum weights in all of our analysis to ensure our results are representative of the sampling frame. Within each stratum, clients were randomly assigned to one of nine study arms so there are 2,000 clients per treatment arm within a stratum.

Within each stratum, the bank randomly allocated 2,000 members each to each of 8 intervention arms and one control arm. Each treatment arm is a combination of two contract characteristics: (a) a required minimum monthly payment which is expressed as a fraction of amount outstanding (debt) on the card, and (b) the interest rate on the amount outstanding. The minimum payment was set at either 5% or

10%. The interest rate could take on one of four values: 15%, 25%, 35% or 45%. The interest rate for the study card prior to the study was approximately about 55% so all the experimental interest rates are reductions relative to the status quo. The two different minimum payments and four different interest rates yield 8 unique contract terms. The experimental design thus identifies for each outcome and for each month 8 treatment effects within each of 9 different strata. In addition 2,000 customers within each stratum also served as a control group whose contract terms did not change during the period of the experiment.

We use detailed data from a large commercial Mexican bank and a product (the study card) that accounted for 15\% of first-time loans nation-wide in 2010. Card holders were chosen subject to the additional constraint that they had paid at least the minimum amount due in each of the six months prior to (and including) January 2007. This left the bank with a sampling frame of about one million clients from which the study sample was drawn. The sampling frame was partitioned into nine strata based on tenure with the bank and payment behavior (each taking on three values), which the bank uses internally as predictors of default. The bank then randomly selected a sample of 18,000 clients per stratum. We use stratum weights in all of our analysis to ensure our results are representative of the sampling frame. Within each stratum, clients were randomly assigned to one of nine study arms so there are 2,000 clients per treatment arm within a stratum.

Within each stratum, the bank randomly allocated 2,000 members each to each of 8 intervention arms and one control arm. Each treatment arm is a combination of two contract characteristics: (a) a required minimum monthly payment which is expressed as a fraction of amount outstanding (debt) on the card, and (b) the interest rate on the amount outstanding. The minimum payment was set at either 5% or

10%. The interest rate could take on one of four values: 15%, 25%, 35% or 45%. The interest rate for the study card prior to the study was approximately about 55% so all the experimental interest rates are reductions relative to the status quo. The two different minimum payments and four different interest rates yield 8 unique contract terms. The experimental design thus identifies for each outcome and for each month 8 treatment effects within each of 9 different strata. In addition 2,000 customers within each stratum also served as a control group whose contract terms did not change during the period of the experiment.

Intervention Start Date

2007-03-01

Intervention End Date

2009-05-01

Primary Outcomes (end points)

(a) Default: defined as three consecutive monthly payments that are less than the minimum payment.

(b) Voluntary cancellations by the client

(c) Revenue (net of default and cancellations)

(b) Voluntary cancellations by the client

(c) Revenue (net of default and cancellations)

Primary Outcomes (explanation)

(a) Default: defined as three consecutive monthly payments that are less than the minimum payment.

(b) Voluntary cancellations by the client

(c) Revenue (net of default and cancellations), client level present value of inflows of money to the bank minus the present value of outflows of money. Adjusting for initial and terminal conditions.

(b) Voluntary cancellations by the client

(c) Revenue (net of default and cancellations), client level present value of inflows of money to the bank minus the present value of outflows of money. Adjusting for initial and terminal conditions.

Secondary Outcomes (end points)

(a) Having another loan with study bank

(b) Having loans with other banks

(c) Default in other banks

(b) Having loans with other banks

(c) Default in other banks

Secondary Outcomes (explanation)

Experimental Design

The experiment was designed and implemented by the Bank without the participation of the researchers.

Within each stratum, the bank randomly allocated 2,000 members each to each of 8 intervention arms and one control arm. Each treatment arm is a combination of two contract characteristics: (a)a required minimum monthly payment which is expressed as a fraction of amount outstanding(debt) on the card, and (b) the interest rate on the amount outstanding. The minimum payment was set at either 5% or 10%. The interest rate could take on one of four values:15%,25%,35% or 45%. The interest rate for the study card prior to the study was approximately about 55%so all the experimental interest rates are reductions relative to the status quo. The two different minimum payments and four different interest rates yield 8 unique contract terms. The experimental design thus identifies for each outcome and for each month 8 treatment effects within each of 9 different strata. In addition 2,000 customers within each stratum also served as a control group whose contract terms did not change during the period of the experiment. In most cases we use the 5% minimum payment and the 45% interest rate group (abbreviated to(45,5)) as the comparison group and we often refer to it as the base arm or base group.

Timeline: Each study client was sent a letter in March 2007 stating the new set of contract terms that would be in force starting in April 2007. Clients were not informed about the study or of any time-line for when then new contract terms would change. The measurement of experimental outcomes began in March 2007 and lasted until May 2009. During this period the interest rate and the minimum payment were kept fixed at their experimentally assigned levels. The experimental terms were not revealed to the risk department (in charge of deciding credit limits).The experiment ended in May 2009 at which point all treatment arm participants received a letter setting out their new contract terms.These terms were the standard conditions with an interest rate of approximately 55% and a mini-mum payment of 4%.

Within each stratum, the bank randomly allocated 2,000 members each to each of 8 intervention arms and one control arm. Each treatment arm is a combination of two contract characteristics: (a)a required minimum monthly payment which is expressed as a fraction of amount outstanding(debt) on the card, and (b) the interest rate on the amount outstanding. The minimum payment was set at either 5% or 10%. The interest rate could take on one of four values:15%,25%,35% or 45%. The interest rate for the study card prior to the study was approximately about 55%so all the experimental interest rates are reductions relative to the status quo. The two different minimum payments and four different interest rates yield 8 unique contract terms. The experimental design thus identifies for each outcome and for each month 8 treatment effects within each of 9 different strata. In addition 2,000 customers within each stratum also served as a control group whose contract terms did not change during the period of the experiment. In most cases we use the 5% minimum payment and the 45% interest rate group (abbreviated to(45,5)) as the comparison group and we often refer to it as the base arm or base group.

Timeline: Each study client was sent a letter in March 2007 stating the new set of contract terms that would be in force starting in April 2007. Clients were not informed about the study or of any time-line for when then new contract terms would change. The measurement of experimental outcomes began in March 2007 and lasted until May 2009. During this period the interest rate and the minimum payment were kept fixed at their experimentally assigned levels. The experimental terms were not revealed to the risk department (in charge of deciding credit limits).The experiment ended in May 2009 at which point all treatment arm participants received a letter setting out their new contract terms.These terms were the standard conditions with an interest rate of approximately 55% and a mini-mum payment of 4%.

Experimental Design Details

Randomization Method

Randomization was done by the Bank in a computer.

Randomization Unit

The unit of randomization was the credit card.

Was the treatment clustered?

No

Sample size: planned number of clusters

we use 144,000 credit cards, the design was not a clustered design.

It did have strata as we described above

It did have strata as we described above

Sample size: planned number of observations

we use 144,000 credit cards

Sample size (or number of clusters) by treatment arms

we use 144,000 credit cards

Minimum detectable effect size for main outcomes (accounting for sample design and clustering)

The bank did not provide us with the power calculations

IRB

INSTITUTIONAL REVIEW BOARDS (IRBs)

IRB Name

IRB Approval Date

IRB Approval Number

Post Trial Information

Is the intervention completed?

No

Is data collection complete?

Data Publication

Is public data available?

No

Program Files