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Geographic diversification and credit supply in times of trouble: Evidence from microlending

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  • Castellani, Davide
  • Afonso, Joana Silva

Abstract

This paper investigates the impact of geographic diversification on the provision of credit during a financial crisis. We analyse in particular the microlending crisis that occurred in Nicaragua from mid-2008. We find that during the crisis, lenders reduced overall credit provision but to a lesser extent to those geographic areas that contributed most to geographic diversification in the boom period. This mitigation effect was greater for those lenders that were more geographically diversified before the onset of the crisis. Furthermore, we discover that lenders with major loan monitoring problems, that is lenders with larger credit officers’ portfolios, cut lending relatively less to those geographic areas that contributed most to geographic diversification. Overall, our results suggest that geographic diversification can support lending when a credit boom ends in a crisis.

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  • Castellani, Davide & Afonso, Joana Silva, 2021. "Geographic diversification and credit supply in times of trouble: Evidence from microlending," Journal of Business Research, Elsevier, vol. 132(C), pages 848-859.
    • Handle: RePEc:eee:jbrese:v:132:y:2021:i:c:p:848-859
    DOI: 10.1016/j.jbusres.2020.10.071
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    More about this item

    Keywords

    Microcredit crises; Geographic diversification; Credit monitoring;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G01 - Financial Economics - - General - - - Financial Crises
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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