Expanding Credit Access: Using Randomized Supply Decisions to Estimate the Impacts

Expanding access to commercial credit is a key ingredient of financial development strategies. There is less consensus on whether expanding access to consumer credit helps borrowers, particularly when loans are extended at high interest rates. Popular skepticism about "unproductive," "usurious" lending is fueled by research highlighting behavioral biases that may induce overborrowing. We estimate the impacts of expanding access to consumer credit at a 200% annual percentage rate (APR) using a field experiment and follow-up data collection. The randomly assigned marginal loans produced significant net benefits for borrowers across a wide range of outcomes. There is also some evidence that the loans were profitable.

Karlan and Zinman (2010)


Urban.RCT.Individual credit with median loan size of $127, 40% of average borrower's gross monthly income. Assessed impact of offering access to individual loans to marginal clients who otherwise would have been rejected.Positive impact of access to credit on clients' retention of jobs (loans likely helped clients smoothe or avoid shocks that prevent them from getting to work). Positive impact of access to credit on HH incomes. Loans increased HH food consumption. Reported experiencing increased HH decision-making (though small sample size of married women and imprecise estimate). No significant difference in impact of credit assigned to men and women. http://rfs.oxfordjournals.org/content/23/1/433.fullPoor men and women wage workers.