NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH
loading...

Financial Inclusion and Contract Terms: Experimental Evidence From Mexico

Sara G. Castellanos, Diego Jiménez Hernández, Aprajit Mahajan, Enrique Seira

NBER Working Paper No. 24849
Issued in July 2018
NBER Program(s):, Development Economics

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 payments to construct a measure of bank revenue per card and find it is generally low and difficult to predict (using machine learning methods), perhaps explaining the bank's eventual discontinuation of the product. Finally, we show that borrowers generating a favorable credit history are much more likely to switch banks providing suggestive evidence of a lending externality. Taken together these facts highlight the difficulty of increasing financial access using large formal sector financial organizations.

download in pdf format
   (1600 K)

email paper

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w24849

 
Publications
Activities
Meetings
NBER Videos
Themes
Data
People
About

National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us