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Cultural Proximity and Loan Outcomes

  • Raymond Fisman

    ()

  • Daniel Paravisini

    ()

  • Vikrant Vig

    ()

Evidence is presented to show that shared codes, religious beliefs, ethnicity - cultural proximity - between lenders and borrowers improves the efficiency of credit allocation. In-group preferential treatment is identified using dyadic data on the religion and caste of bank officers and borrowers from a bank in India, and a rotation policy that induces exogenous matching between officers and borrowers. Cultural proximity increases lending on both intensive and extensive margins and improves repayment performance, even after the in-group officer is replaced by an out-group one. Further, cultural proximity increases loan dispersion and reduces loan to collateral ratios. [BREAD Working Paper No. 345]. URL:[http://ipl.econ.duke.edu/bread/papers/working/345.pdf]

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Date of creation: Jul 2012
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Handle: RePEc:ess:wpaper:id:5036
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