Sara G. Castellanos
Banco de México
Institutional Affiliation: Banco de México
NBER Working Papers and Publications
|July 2018||Financial Inclusion and Contract Terms: Experimental Evidence From Mexico|
with Diego Jiménez Hernández, Aprajit Mahajan, Enrique Seira: w24849
This paper provides evidence on the difficulty of expanding access to credit through large institutions. We use detailed observational data and a large-scale countrywide experiment to examine a large bank's experience with a credit card that accounted for approximately 15% of all first-time formal sector borrowing in Mexico in 2010. Borrowers have limited credit histories and high exit-risk – a third of all study cards are defaulted on or canceled during the 26 month sample period. We use a large-scale randomized experiment on a representative sample of the bank's marginal borrowers to test whether contract terms affect default. We find that large experimental changes in interest rates and minimum payments do little to mitigate default risk. We also use detailed data on purchases and payme...