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  • November 2021
  • Article
  • Journal of Development Economics

Borrower Leakage from Costly Screening: Evidence from SME Lending in Peru

By: Irani Arraiz, Miriam Bruhn, Benjamin N. Roth, Claudia Ruiz-Ortega and Rodolfo Stucchi
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Abstract

We provide evidence that commercial lenders in Peru suffer leakages in their loan approval process. Leveraging a discontinuity in the loan approval process of a large bank, we find that receiving a loan approval from the bank causes loan applicants to receive offers from other financial institutions as well. Competing lenders captured almost three quarters of the new loans to previously financially excluded borrowers. Importantly, many of these borrowers never took a loan from our partner bank, even after our partner bank approved them. Lenders may therefore underinvest in screening new borrowers and expanding financial inclusion, as their competitors reap some of the benefit. Our results highlight that information spillovers between lenders may operate outside of credit registries.

Keywords

Information Spillovers; SME Lending; Financial Inclusion; Banks and Banking; Financing and Loans; Small Business; Information; Peru

Citation

Arraiz, Irani, Miriam Bruhn, Benjamin N. Roth, Claudia Ruiz-Ortega, and Rodolfo Stucchi. "Borrower Leakage from Costly Screening: Evidence from SME Lending in Peru." Journal of Development Economics 153 (November 2021).
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About The Author

Benjamin N. Roth

Entrepreneurial Management
→More Publications

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More from the Authors
  • Targeting High Ability Entrepreneurs Using Community Information: Mechanism Design in the Field By: Reshmaan Hussam, Natalia Rigol and Benjamin N. Roth
  • Contractual Restrictions and Debt Traps By: Ernest Liu and Benjamin N. Roth
  • A Close Shave at Squire By: Jeffrey J. Bussgang, Benjamin N. Roth and Michael Norris
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