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...

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Main Authors:	Arraiz, Irani, Bruhn, Miriam, Roth, Benjamin N., Ruiz-Ortega, Claudia, Stucchi, Rodolfo
Format:	Working Paper
Language:	English
Published:	World Bank, Washington, DC 2019
Subjects:	ASYMMETRIC INFORMATION CREDIT MARKET COMPETITION ACCESS TO CREDIT ACCESS TO FINANCE SME FINANCE BANKING FINANCIAL INCLUSION
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

id	okr-10986-33016
recordtype	oai_dc
spelling	okr-10986-330162022-09-20T00:14:24Z Free Riding in Loan Approvals : Evidence from SME Lending in Peru Arraiz, Irani Bruhn, Miriam Roth, Benjamin N. Ruiz-Ortega, Claudia Stucchi, Rodolfo ASYMMETRIC INFORMATION CREDIT MARKET COMPETITION ACCESS TO CREDIT ACCESS TO FINANCE SME FINANCE BANKING FINANCIAL INCLUSION 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. 2019-12-13T21:11:34Z 2019-12-13T21:11:34Z 2019-12 Working Paper http://documents.worldbank.org/curated/en/203711575382940042/Free-Riding-in-Loan-Approvals-Evidence-from-SME-Lending-in-Peru http://hdl.handle.net/10986/33016 English Policy Research Working Paper;No. 9072 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo World Bank World Bank, Washington, DC Publications & Research Publications & Research :: Policy Research Working Paper Latin America & Caribbean Peru
repository_type	Digital Repository
institution_category	Foreign Institution
institution	Digital Repositories
building	World Bank Open Knowledge Repository
collection	World Bank
language	English
topic	ASYMMETRIC INFORMATION CREDIT MARKET COMPETITION ACCESS TO CREDIT ACCESS TO FINANCE SME FINANCE BANKING FINANCIAL INCLUSION
spellingShingle	ASYMMETRIC INFORMATION CREDIT MARKET COMPETITION ACCESS TO CREDIT ACCESS TO FINANCE SME FINANCE BANKING FINANCIAL INCLUSION Arraiz, Irani Bruhn, Miriam Roth, Benjamin N. Ruiz-Ortega, Claudia Stucchi, Rodolfo Free Riding in Loan Approvals : Evidence from SME Lending in Peru
geographic_facet	Latin America & Caribbean Peru
relation	Policy Research Working Paper;No. 9072
description	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.
format	Working Paper
author	Arraiz, Irani Bruhn, Miriam Roth, Benjamin N. Ruiz-Ortega, Claudia Stucchi, Rodolfo
author_facet	Arraiz, Irani Bruhn, Miriam Roth, Benjamin N. Ruiz-Ortega, Claudia Stucchi, Rodolfo
author_sort	Arraiz, Irani
title	Free Riding in Loan Approvals : Evidence from SME Lending in Peru
title_short	Free Riding in Loan Approvals : Evidence from SME Lending in Peru
title_full	Free Riding in Loan Approvals : Evidence from SME Lending in Peru
title_fullStr	Free Riding in Loan Approvals : Evidence from SME Lending in Peru
title_full_unstemmed	Free Riding in Loan Approvals : Evidence from SME Lending in Peru
title_sort	free riding in loan approvals : evidence from sme lending in peru
publisher	World Bank, Washington, DC
publishDate	2019
url	http://documents.worldbank.org/curated/en/203711575382940042/Free-Riding-in-Loan-Approvals-Evidence-from-SME-Lending-in-Peru http://hdl.handle.net/10986/33016
_version_	1764477813768847360

Free Riding in Loan Approvals : Evidence from SME Lending in Peru

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