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Big Loans to Small Businesses: Predicting Winners and Losers in an Entrepreneurial Lending Experiment

Author

Listed:
  • Bryan, Gharad
  • Karlan, Dean
  • Osman, Adam

Abstract

We experimentally study the impact of relatively large enterprise loans in Egypt. Larger loans generate small average impacts, but machine learning using psychometric data reveals that †top-performers†(those with the highest predicted treatment effects) substantially increase profits, while profits drop for poor-performers. The large differences imply that lender credit allocation decisions matter for aggregate income, yet we find that existing practice leads to substantial misallocation. We argue that some entrepreneurs are over-optimistic and squander the opportunities presented by larger loans by taking on too much risk, and show the promise of allocations based on entrepreneurial type relative to firm characteristics.

Suggested Citation

  • Bryan, Gharad & Karlan, Dean & Osman, Adam, 2022. "Big Loans to Small Businesses: Predicting Winners and Losers in an Entrepreneurial Lending Experiment," CEPR Discussion Papers 16573, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:16573
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    Cited by:

    1. is not listed on IDEAS
    2. Bruhn, Miriam & Ortega Hernandez,Johan Andrey & Ruiz Ortega, Claudia, 2025. "Do Formal Loans Boost SME Performance ? Key Takeaways from a Meta-Analysis," Policy Research Working Paper Series 11140, The World Bank.
    3. Bruno Fava, 2025. "Training and Testing with Multiple Splits: A Central Limit Theorem for Split-Sample Estimators," Papers 2511.04957, arXiv.org, revised Nov 2025.
    4. Oriana Bandiera & Robin Burgess & Erika Deserranno & Ricardo Morel & Imran Rasul & Munshi Sulaiman & Jack Thiemel, 2022. "Microfinance and Diversification," Economica, London School of Economics and Political Science, vol. 89(S1), pages 239-275, June.
    5. Masselus, Lise & Petrik, Christina & Ankel-Peters, Jörg, 2024. "Lost in the design space? Construct validity in the microfinance literature," Ruhr Economic Papers 1097, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.
    6. repec:osf:osfxxx:nwp8k_v1 is not listed on IDEAS
    7. Tefera, Girum Abebe & Cassidy, Rachel & Weis, Toni Johannes, 2025. "Access to Capital and Women's Entrepreneurship," Policy Research Working Paper Series 11232, The World Bank.
    8. Alibhai,Aly Salman & Cassidy,Rachel Margaret & Goldstein,Markus P. & Papineni,Sreelakshmi, 2022. "Evening the Credit Score ? Impact of Psychometric Loan Appraisal for Women Entrepreneurs," Policy Research Working Paper Series 10230, The World Bank.

    More about this item

    Keywords

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    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship
    • M21 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Economics - - - Business Economics
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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