Borrowing Requirements, Credit Access, and Adverse Selection: Evidence from Kenya

Citation:

Jack, William, Michael Kremer, Joost de Laat, and Tavneet Suri. 2018. “Borrowing Requirements, Credit Access, and Adverse Selection: Evidence from Kenya.” Working Paper.
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Abstract:

 

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.

 

Last updated on 09/24/2019