Free Riding in Loan Approvals : Evidence from SME Lending in Peru
This paper provides evidence that commercial lenders in Peru free ride off their peers' screening efforts. Leveraging a discontinuity in the loan approval process of a large bank, the study finds that competing lenders responded to additional...
| Main Authors: | , , , , |
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| Format: | Working Paper |
| Language: | English |
| Published: |
World Bank, Washington, DC
2019
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/203711575382940042/Free-Riding-in-Loan-Approvals-Evidence-from-SME-Lending-in-Peru http://hdl.handle.net/10986/33016 |
| Summary: | This paper provides evidence that
commercial lenders in Peru free ride off their peers'
screening efforts. Leveraging a discontinuity in the loan
approval process of a large bank, the study finds that
competing lenders responded to additional loan approvals by
issuing approvals of their own. Competing lenders captured
almost three-quarters of the new loans to previously
financially excluded borrowers, greatly diminishing the
profits accruing to the initiating bank. Lenders may
therefore underinvest in screening new borrowers and
expanding financial inclusion, as their competitors reap
some of the benefit. The results highlight that information
spillovers between lenders may operate outside credit registries. |
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