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Screening with Cash Deposits in Digital Credit Markets

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  • Paul Gertler
  • Brett Green
  • Catherine Wolfram

Abstract

We study a loan contract that requires borrowers to make a temporary cash deposit prior to disbursement, which is fully refunded and does not alter repayment incentives. In a randomized controlled trial with a digital lender, applicants are offered otherwise identical loans with or without a deposit. The deposit requirement reduces loan take-up but substantially improves repayment and lender profitability. The results indicate that deposits screen borrowers on both observable and unobservable characteristics. Higher-risk borrowers are less likely to take up deposit loans, and among borrowers with the same observable risk profile, those who accept deposit loans repay at higher rates, with the largest differences among low-risk borrowers. These findings show that simple contract features can complement data-driven credit models by adding an additional screening margin.

Suggested Citation

  • Paul Gertler & Brett Green & Catherine Wolfram, 2026. "Screening with Cash Deposits in Digital Credit Markets," NBER Working Papers 35001, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:35001
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    More about this item

    JEL classification:

    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G51 - Financial Economics - - Household Finance - - - Household Savings, Borrowing, Debt, and Wealth
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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