Capital, Skills and the Economic Lives of the Poor: Recent Evidence from Field Experiments

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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.

PDF icon Bandiera et al_Capital Skills Economic Lives of Poor.pdfOriana BandieraRobin BurgessSelim GulesciImran RasulMunshi Sulaiman