We study asset collateralized loans for water tanks in Kenya. On replacing loans with high down payments and stringent guarantor requirements with the asset collateralized loans, the take-up of loans increased from 2.4% to 41.9% and we show that the loans had real impacts on households. A Karlan-Zinman test based on waiving borrowing requirements ex post finds evidence of adverse selection with lowered deposit requirements, but no evidence of moral hazard. A simple model and rough calibration suggests that adverse selection may deter lenders from making welfare-improving loans with lower deposit requirements, even after introducing asset collateralization.
Ahuja, Amrita, Sarah Baird, Joan Hamory Hicks, Michael Kremer, and Edward Miguel. 2017. “Economics of Mass Deworming Programs.” Disease Control Priorities: Child and Adolescent Health and Development 8: 413-422.