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Borrowing Requirements, Credit Access, and Adverse Selection: Evidence from Kenya / William Jack, Michael Kremer, Joost de Laat, Tavneet Suri.
- Format:
- Book
- Author/Creator:
- Jack, William.
- Series:
- Working Paper Series (National Bureau of Economic Research) no. w22686.
- NBER working paper series no. w22686
- Language:
- English
- Physical Description:
- 1 online resource: illustrations (black and white);
- Other Title:
- Borrowing Requirements, Credit Access, and Adverse Selection
- Place of Publication:
- Cambridge, Mass. National Bureau of Economic Research 2016.
- Summary:
- Do the stringent formal sector borrowing requirements common in many developing countries restrict credit access, technology adoption, and welfare? When a Kenyan dairy's savings and credit cooperative randomly offered some farmers the opportunity to replace loans with high down payments and stringent guarantor 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 did not affect loan take up.) There were no repossessions among farmers allowed to collateralize 75% of their loans, and there was only 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 lowered deposit requirements, but not of moral hazard. A simple model and rough calibration suggests that adverse selection may deter lenders from making welfare-improving loans with lower deposit requirements, even after introducing asset collateralization. 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 for girls.
- Notes:
- September 2016.
- Print version record
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