What If borrowers were Informed about Credit Reporting? Two Randomized Field Experiments

Date
2021
Authors
Martin, Xiumin
Liao, Li
Wang, Ni
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Abstract
Using two randomized field experiments, we examine how warning borrowers that their loan performance will be reported to a public credit registry affects their loan take-up and repayment decisions. We show that credit warnings increase loan take-up rates. The main drivers appear to be anticipation of reduction in incumbent lenders’ informational rents and improvement in access to informal or formal credit. Moreover, credit warnings reduce default rates by 3.7–5.9 percentage points. This reduction is comparable for borrowers who receive the credit warning before and after the loan take-up, which suggests that credit warnings have little net effect on borrowers’ credit-risk composition due to selection.
Description
Keywords
Credit reporting, Loan take-up, Default, Incentive, Selection, Field experiment
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