Credit Screening with Cash Deposits
We study a cash loan contract that requires borrowers to make a cash deposit prior to disbursement. The deposit is credited toward the loan principal at disbursement and does not alter repayment incentives. In a randomized controlled trial, we find that the deposit requirement reduces loan take-up but selects borrowers who repay substantially better, raising lender profits. The deposit screens borrowers on both observable and latent characteristics: high-risk borrowers are less likely to take deposit loans and, controlling for all observables, deposit-loan takers repay at a higher rate, particularly among low-risk borrowers.
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Copy CitationPaul Gertler, Brett Green, and Catherine Wolfram, "Credit Screening with Cash Deposits," NBER Working Paper 35001 (2026), https://doi.org/10.3386/w35001.Download Citation
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