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Serving the Underserved: Microcredit as a Pathway to Commercial Banks

Author

Listed:
  • Sumit Agarwal

    (National University of Singapore)

  • Thomas Kigabo

    (National Bank of Rwanda)

  • Camelia Minoiu

    (Federal Reserve Bank of Atlanta)

  • Andrea F. Presbitero

    (International Monetary Fund & CEPR)

  • André F. Silva

    (Federal Reserve Board)

Abstract

A large-scale microcredit expansion program—together with a credit bureau accessible to all lenders—can enable unbanked borrowers to build a credit history, facilitating their transition to commercial banks. Loan-level data from Rwanda show the program improved access to credit and reduced poverty. A sizable share of first-time borrowers switched to commercial banks, which cream-skim less risky borrowers and grant them larger, cheaper, and longer-maturity loans. Switchers have lower default risk than nonswitchers and are not riskier than other bank borrowers. Switchers also obtain better loan terms from banks compared with first-time bank borrowers without a credit history.

Suggested Citation

  • Sumit Agarwal & Thomas Kigabo & Camelia Minoiu & Andrea F. Presbitero & André F. Silva, 2023. "Serving the Underserved: Microcredit as a Pathway to Commercial Banks," The Review of Economics and Statistics, MIT Press, vol. 105(4), pages 780-797, July.
    • Handle: RePEc:tpr:restat:v:105:y:2023:i:4:p:780-797
    DOI: 10.1162/rest_a_01117
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    Cited by:

    1. J. Michael Collins & Jeff Larrimore & Carly Urban, 2021. "Does Access to Bank Accounts as a Minor Improve Financial Capability? Evidence from Minor Bank Account Laws," Finance and Economics Discussion Series 2021-075, Board of Governors of the Federal Reserve System (U.S.).
    2. Beck, Thorsten & Gambacorta, Leonardo & Huang, Yiping & Li, Zhenhua & Qiu, Han, 2022. "Big techs, QR code payments and financial inclusion," CEPR Discussion Papers 17297, C.E.P.R. Discussion Papers.
    3. Angelo D’Andrea & Patrick Hitayezu & Mr. Kangni R Kpodar & Nicola Limodio & Mr. Andrea F Presbitero, 2024. "Mobile Internet, Collateral, and Banking," IMF Working Papers 2024/070, International Monetary Fund.
    4. Christoph Sommer, 2022. "Unintended consequences of microfinance: Effects on credit access for small‐ and medium‐sized enterprises," Journal of International Development, John Wiley & Sons, Ltd., vol. 34(3), pages 564-586, April.

    More about this item

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
    • O55 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Africa

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