Journal Article

Expanding Credit Access: Using Randomized Supply Decisions to Estimate the Impacts

Dean Karlan and Jonathan Zinman

in The Review of Financial Studies

Published on behalf of The Society for Financial Studies

Volume 23, issue 1, pages 433-464
Published in print January 2010 | ISSN: 0893-9454
Published online November 2009 | e-ISSN: 1465-7368 | DOI: https://dx.doi.org/10.1093/rfs/hhp092
Expanding Credit Access: Using Randomized Supply Decisions to Estimate the Impacts

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  • Household Behaviour and Family Economics
  • Banking
  • Welfare and Poverty

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Expanding access to commercial credit is a key ingredient of financial development strategies. There is less consensus on whether expanding access to consumer credit helps borrowers, particularly when loans are extended at high interest rates. Popular skepticism about “unproductive,” “usurious” lending is fueled by research highlighting behavioral biases that may induce overborrowing. We estimate the impacts of expanding access to consumer credit at a 200% annual percentage rate (APR) using a field experiment and follow-up data collection. The randomly assigned marginal loans produced significant net benefits for borrowers across a wide range of outcomes. There is also some evidence that the loans were profitable.

Keywords: D12; D14; G21; I32

Journal Article.  14711 words. 

Subjects: Household Behaviour and Family Economics ; Banking ; Welfare and Poverty

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