Joint Lending, Not Borrowing: A New Approach to Credit and Entrepreneurship in LDCs

Individual credit officers are 28% less likely to assess applications correctly when soft information (e.g. caste of applicant) is provided

From:
Department for International Development
Published
28 February 2019
Document Type:
Research Paper
Theme:
Economic Growth
Authors:
Wan, X. Y., Chandrasekhar, A.

Abstract

The authors study how the quality of decision making, in this case by credit officers, depends on

  1. whether decisions are made at the group or individual level

  2. whether soft information is available beyond hard information

  3. the incentive structure that officers face.

They find that individual credit officers are 28% less likely to assess applications correctly when soft information (e.g. caste of applicant) is provided. Further, biased individuals – as measured by an implicit association tests (IAT) – make worse decisions, particularly when their caste differs from the applicant’s. However, we find that when evaluators are paired, the quality of decision making improves, especially when pairs are mixed-caste.

This research was funded under the Private Enterprise Development in Low Income Countries (PEDL) Programme

Citation

Wan, X. Y., Chandrasekhar, A. (2019) Joint Lending, not Borrowing: A New Approach to Credit and Entrepreneurship in LDCs, PEDL

Joint Lending, Not Borrowing: A New Approach to Credit and Entrepreneurship in LDCs

Published 28 February 2019
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