DP14464 Information Sharing in a Competitive Microcredit Market

Author(s): Jaap Bos, Ralph de Haas, Matteo Millone
Publication Date: March 2020
Keyword(s): Credit registry, information sharing, microcredit, overborrowing
JEL(s): D04, D82, G21, G28
Programme Areas: Financial Economics, Development Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=14464

We analyze contract-level data on approved and rejected microloans to assess the impact of a new credit registry in Bosnia and Herzegovina, a country with a competitive microcredit market. Our findings are threefold. First, information sharing reduces defaults, especially among new borrowers, and increases the return on lending. Second, lending tightens at the extensive margin as loan officers, using the new registry, reject more applications. Third, lending also tightens at the intensive margin: microloans become smaller, shorter and more expensive. This affects both new borrowers and lending relationships established before the registry. In contrast, repeat borrowers whose lending relationship started after the registry introduction begin to benefit from larger loans at lower interest rates.