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Body Mass and Creditworthiness: Evidence from Loan Officers in Uganda
Last registered on November 01, 2019

Pre-Trial

Trial Information
General Information
Title
Body Mass and Creditworthiness: Evidence from Loan Officers in Uganda
RCT ID
AEARCTR-0004528
Initial registration date
August 21, 2019
Last updated
November 01, 2019 8:10 AM EDT
Location(s)

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Primary Investigator
Affiliation
Other Primary Investigator(s)
Additional Trial Information
Status
In development
Start date
2019-11-01
End date
2020-09-01
Secondary IDs
Abstract
In low income countries, overweight and obesity are more widespread among rich individuals. In contexts where income information is limited, high body mass might be exploited as signal of wealth. In this project I study how individuals' body mass affects their chance of accessing credit via a survey experiment in Uganda. Respondents are loan officers from a random subsample of licensed money lending institutions from the metropolitan area of Kampala, the capital. Loan officers are a key step in the process of accessing credit: They screen prospective clients, verify their information and upon verification, determine whether applicants qualify for the selected loan.

In the survey experiment, loan officers evaluate multiple hypothetical loan applications. As in the IRR paradigm by Kessler et al. (WP 2019), truthful answers are incentivised by providing real referrals. In the applications, I randomise body mass of hypothetical applicants, and evaluate how this affects loan officers' evaluations. My measure of access to credit are the loan officer’s 1) choice of meeting the hypothetical applicant; 2) likelihood of qualifying the loan application; 3) charged interest rate. Furthermore, to investigate the mechanism at play, I elicit 4) assessment of the applicant’s creditworthiness and 5) assessment of the applicants' ability to put the loan to productive use.

Loan officers evaluate in total 30 hypothetical applications, which are split into three treatment arms, which vary how much and in which way information on the applicant is presented (within-subject design). The three arms allow to pin down the mechanism at play, by allowing to understand at which point of the decision making process does the discrimination bites.

This set up allows to (1) test whether body mass affects perceived creditworthiness and access to credit, (2) test whether reducing asymmetric information on income changes the relevance of body mass in determining the decision, and (3) understand at which, if any, step of the decision making process does the discrimination bites.
External Link(s)
Registration Citation
Citation
Macchi, Elisa. 2019. "Body Mass and Creditworthiness: Evidence from Loan Officers in Uganda." AEA RCT Registry. November 01. https://doi.org/10.1257/rct.4528-2.4.
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Experimental Details
Interventions
Intervention(s)
Intervention Start Date
2019-11-01
Intervention End Date
2020-09-01
Primary Outcomes
Primary Outcomes (end points)
Access to credit:
- choice of granting a meeting
- choice of qualifying the application
- interest rate charged

Creditworthiness

Perceived Financial Ability:
- perception as able to put loan money to productive use
Primary Outcomes (explanation)
Access to credit:
(1) Meeting: A Yes/No choice of meeting the applicant to discuss and verify information;
(2) Qualifying: a 1-5 Likert scale assessment of the probability of qualifying the requested application.

Creditworthiness: a 1-5 Likert scale assessment of the creditworthiness of the applicant

Perceived Financial Ability: a 1-5 Likert scale assessment of the probability that the applicant puts the money to productive use.

Secondary Outcomes
Secondary Outcomes (end points)
Interest Rate.
Trust in the information provided (only when more information is provided).
Loan's officers attention:
- choice of receiving more information
- time spent on each application

Explicit Bias
Secondary Outcomes (explanation)

Interest Rate: a 1-3 scale choice of the interest rate charged to the applicant (lower than standard, standard, higher than standard, not applicable). NA is selected for those loan officers who have no discretionality to change interest rate.

Trust in the information provided: A 1-5 Likert scale assessment of the probability that the applicant information is believed to be trustworthy.

Loan's officers attention: Yes/No choice of receiving more information on an applicant.

Explicit Bias: Pointing on a silhouette, whether an individual moving from low to high BM silhouette would more/less/equally likely to receive a loan.
Experimental Design
Experimental Design
Loan officers are asked to evaluate 30 hypothetical loan applications, in three sets. Each set is a treatment arm, the design exploits within subject variation and the order of the treatment arms is fixed. Each treatment arm varies according to how much and which information is presented. In the first treatment arm, respondents only see the picture, age and loan profile requested. In the second treatment arm, respondents only see the picture, age and loan profile requested but can choose to learn occupation and income of the applicant. In the third treatment arm, participants see all the information (including the picture) at once.

Within each treatment arm, the applications vary by characteristics; in each application, the applicants' age, nationality and place of residence are defined statically, while the applicants' loan profile, collateral, reason for loan, occupation, income (profits and revenues), gender, portrait, body mass are cross-randomised. Body mass is randomized by assigning the high body mass or low body mass photomorphed version of the randomly selected portrait. To avoid suspicions, portraits are randomized without replacement across the full set of applications each respondents receives so that no picture is seen twice by the same respondent.

Using the procedure detailed in the appendix, I first build 30 loan applications with all the cross randomized information, except body mass. Then I create the final set of 60 applications by creating two versions (a high body mass or low body mass) of each application. The 10 applications are randomly assigned to each arm stratified by characteristics. The order of the applications within each arm is random.

For each application, the loan officer answers the following questions:

1) Would you like us to refer to you this applicant to meet and discuss this loan application? Yes No

2) Based on your first impression, how likely would you be to approve this loan application? Not at all likely 1 2 3 4 5 Very likely

3) “Creditworthiness describes how likely a person is to repay a financial obligation according to the terms of the agreement.” Based on your first impression, how would you rate the person’s creditworthiness? Not at all creditworthy 1 2 3 4 5 Very creditworthy

4) Based on your first impression, how likely do you think this person would be to put the loan money to productive use? Not at all likely 1 2 3 4 5 Very likely

5) If you had to grant this loan to this person, what is the interest rate would you charge to this applicant?
Lower than standard - Standard - Higher than Standard
Interest rate question is only displayed to loan officers which have discretionality to change interest rates.

When answering the questions, the loan officers are informed that the applicants are hypothetical. Honest answers are incentivised by informing the loan officers that their answers will be used to provide referrals to prospective clients whose characteristics match with their preferences. The matching is performed using a machine learning algorithm, following Kessler et al. (2019).

The design allows to investigate whether
(1) body mass affects access to credit and creditworthiness,
(2) whether reducing asymmetric information on income changes the relevance of body mass in determining the decision,
(3) at which point of the decision making process does discrimination bites.

Relevant heterogeneity analysis include: 1) gender of applicant and loan officer; 2) body mass of the loan officer; 3) age of the loan officer; 4) perception of high body mass. If heterogeneity in the share of applicant invited is detected (either at the loan officers' level or at the institution level), I will compare "lemon dropping" types to "cherry picking" ones.
The incentives structure of the experiment is based on the idea that it is worthwhile for loan officers to receive good applicants. This incentives are the strongest when the loan officers' pay is tied to performance. While incentives might still be aligned also in the absence of performance pay (good applicants' referrals reduce screening and verification costs), nonetheless they are likely to be less relevant. Hence, if heterogeneity by performance pay will emerge, I will compare answers of high incentives vs low incentives loan officers.

Experimental Design Details
Not available
Randomization Method
computer
Randomization Unit
Loan officer level; Application level.
Was the treatment clustered?
Yes
Experiment Characteristics
Sample size: planned number of clusters
minimum/expected 250 loan officers.

The sample size is obtained as follows. The set of institutions is obtained by randomly selecting 250 branches in Kampala, Mukono and Wakiso, stratifying by bank tier and location. Notably, commercial banks are excluded from the randomisation, as they are unlikely to lend as little as low as Ush. 1 million. Each selected branch is visited to ask whether they will be willing to participate to the study. If they agree, first it is verified that the institution offers both personal and business loans; second, it is verified that the institution offers as little as Ush. 1 million loans. If these conditions are met, 1 to 2 loan officers are interviewed depending on availability. The procedure continues until exhaustion of the list. The target loan officers number is 250 loan officers. If the 250 branches interview fail to reach the target number, we will perform a second randomisation among the remaining branches.

Outliers:
We consider as poor data and hence exclude from the sample those observations which show variation in the outcome variable of interest "qualify" for a given arm, and specifically bounce on 3. Furthermore, we will consider as outliers those observations which show a consistent negative correlation between "meet" and "qualify".
Sample size: planned number of observations
30 applications per loan officer, for a total of expected 250 loan officers.
Sample size (or number of clusters) by treatment arms
This is not an RCT. minimum 250 loan officers per treatment arm, 10 applications per treatment arm.
Minimum detectable effect size for main outcomes (accounting for sample design and clustering)
In Kessler et al. (2019), the effect of gender on hiring interest for the STEM majors subsample ranged from 0.399 to 0.516 sd., with a single treatment arm. Because the effect the effect of body mass is presumably mediated by wealth, I target a smaller MDE. Using data from power calculations, 2500 observations allow me to pick up for choice of meeting an effect slightly larger than 0.05 in each arm.
Supporting Documents and Materials

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IRB
INSTITUTIONAL REVIEW BOARDS (IRBs)
IRB Name
Mildmay Uganda
IRB Approval Date
2019-10-22
IRB Approval Number
0509-2019
IRB Name
Human Subjects Committee of the Faculty of Economics, Business Administration, and Information Technology
IRB Approval Date
2019-08-20
IRB Approval Number
OEC IRB # 2019-032