IDEAS home Printed from https://ideas.repec.org/p/cpr/ceprdp/11523.html
   My bibliography  Save this paper

Borrowing Requirements, Credit Access, and Adverse Selection: Evidence from Kenya

Author

Listed:
  • Jack, William
  • Kremer, Michael
  • Laat, Joost de
  • Suri, Tavneet

Abstract

We examine the potential of asset-collateralized loans in low-income country credit markets. When a Kenyan dairy cooperative exogenously replaced high down payments and joint liability requirements with loans collateralized by the asset itself - a large water tank - loan take-up increased from 2.4% to 41.9%. In contrast, substituting joint liability requirements for deposit requirements had no impact on loan take up. There were no repossessions among farmers allowed to collateralize 75% of their loans, and a 0.7% repossession rate among those offered 96% asset collateralization. A Karlan-Zinman test based on waiving borrowing requirements ex post finds evidence of adverse selection with very low deposit requirements, but not of moral hazard. A simple model and rough calibration suggests that adverse selection and regulatory caps on interest rates may deter lenders from making welfare-improving loans with low deposit requirements. We estimate that 2/3 of marginal loans led to increased water storage investment. Real effects of loosening borrowing requirements include increased household water access, reductions in child time spent on water-related tasks, and greater school enrollment forr girls.

Suggested Citation

  • Jack, William & Kremer, Michael & Laat, Joost de & Suri, Tavneet, 2016. "Borrowing Requirements, Credit Access, and Adverse Selection: Evidence from Kenya," CEPR Discussion Papers 11523, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:11523
    as

    Download full text from publisher

    File URL: http://www.cepr.org/active/publications/discussion_papers/dp.php?dpno=11523
    Download Restriction: CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org
    ---><---

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Geng, Xin & Janssens, Wendy & Kramer, Berber, 2018. "Liquid milk: Cash Constraints and Recurring Savings among Dairy Farmers in Kenya," 2018 Annual Meeting, August 5-7, Washington, D.C. 273823, Agricultural and Applied Economics Association.
    2. Ahlin, Christian & Gulesci, Selim & Madestam, Andreas & Stryjan, Miri, 2020. "Loan contract structure and adverse selection: Survey evidence from Uganda," Journal of Economic Behavior & Organization, Elsevier, vol. 172(C), pages 180-195.
    3. Casaburi, Lorenzo & Macchiavello, Rocco, 2015. "Firm and Market Response to Saving Constraints: Evidence from the Kenyan Dairy Industry," CEPR Discussion Papers 10952, C.E.P.R. Discussion Papers.
    4. Battaglia, Marianna & Gulesci, Selim & Madestam, Andreas, 2018. "Repayment Flexibility and Risk Taking: Experimental Evidence from Credit Contracts," CEPR Discussion Papers 13329, C.E.P.R. Discussion Papers.
    5. Geng, Xin & Janssens, Wendy & Kramer, Berber N., 2017. "Liquid milk: Cash constraints and day-to-day intertemporal choice in financial diaries," IFPRI discussion papers 1602, International Food Policy Research Institute (IFPRI).

    More about this item

    Keywords

    agriculture; asymmetric information; borrowing requirements; collateralization; credit; down-payment; Kenya;
    All these keywords.

    JEL classification:

    • O13 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cpr:ceprdp:11523. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: . General contact details of provider: https://www.cepr.org .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (email available below). General contact details of provider: https://www.cepr.org .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.