THE DEVELOPMENT FIELD AGRICULTURAL & RESOURCE ECONOMICS UNIVERSITY OF CALIFORNIA AT BERKELEY

The deepening of financial services for the rural poor in Latin America

Lending is an information-intensive activity. The ability of lenders to verify the repayment history of borrowers and their outside indebtedness is a precondition for liquid capital markets. Two factors currently coincide in most Latin American countries to bring together new sources of information with new sources of capital: the rapid growth of public and private credit bureaus in combination with a tremendous extension of lending capital to the poor driven by the new lending technologies of microfinance. Due to these two factors, not only is there a huge number of (mostly semi-poor) borrowers who have, in the past decade, established experience and reputation with microfinance lenders, but private capital markets are increasingly extending loans to poorer clients. This intersection of factors turns our attention towards credit reporting as a natural mechanism through which economic mobility may be enhanced. Two countries have been selected for specific focus in this research, Peru and Guatemala, where confederations of major microfinance lenders have instituted new credit bureaus three years ago.

Training of Genesis clients Guatemala Project on Credit Bureau

Phase I: Survey experience with Credit Bureaus

Credit Bureaus and the Rural Microfinance Sector: Peru, Guatemala, and Bolivia

Up the Lending Ladder: Financial Services for the Rural Poor Through Credit-Reporting Bureaus

Phase II: Guatemala project

We have assembled totally unique datasets for the analysis of information sharing in Guatemala using the client records of several of the country's largest microfinance lenders (providing us with the ability to measure important, non-experimental components of client composition and repayment performance over time). We are also organizing a number of experiments in Guatemalan microfinance markets.

1. Training of group loan clients of Genesis on how credit reporting system works.
2. Impact of credit bureaus in screening new clients by Fe y Alegria.
3. Showing credit report forms to individual clients for continuation of training at Genesis
4. Credit officers' use of different types of information in screening clients

"Credit Information Systems in Less-Developed Countries: Recent History and a Test" by J. Luoto, C. McIntosh and B. Wydick, Sept 2004.

"A Decomposition of Screening and Incentive Effects in Credit Information Systems" by C. McIntosh and B. Wydick, Sept 2004.
Revised version published in Journal of Development Economics, 78: 271-298, 2005.

"From Private to Public Reputation in Microfinance Lending: An Experiment in Borrower Response" by Alain de Janvry, Craig McIntosh, and Elisabeth Sadoulet, May 2006.

de Janvry, Alain, Craig McIntosh, and Elisabeth Sadoulet. 2009. "The Supply and Demand Side Impacts of Credit Market Information" Journal of Development Economics. 2010. pdf

Better Lending and Better Clients: Credit Bureau Impact on Microfinance. Basis Brief, by Alain de Janvry, Jill Luoto, Craig McIntosh, Greg Rafert, and Elisabeth Sadoulet, May 2006.

Phase II: Peru project in collaboration with GRADE and Dean Karlan of Princeton:

1. Analysis of ex-FINCA clients in Ayacucho.
2. Construction of a dataset to study overlap in the absence of bureaus.

Phase III: Savings Promotion to MFI Borrowers

A very large bank in Guatemala is extending a new savings product to its microfinance clients, and was interested in trying to generate meaningful take-up of the product as well as generating higher savings balances. What is proposed here is the addition of two new savings products, and the inclusion of new ways of marketing these savings products, using commitment and default options, to assist them in this process. The research design will be based on offering the different products to different subsets of new clients at different moments in time, and using institutional data to track savings balances and impacts on other financial services such as credit and insurance.
Questions that can be answered with this research design:

1. Does promotion of savings alone make any difference?
2. Does the Commitment or Default savings product generate higher savings rates than the promotion-only product?
3. Does having access to an improved savings balance decrease default on microfinance loans?
4. Do savings substitute for Credit in the demand for financial services?

Commercial Savings Products based on Behavioral Insights: An Experiment from Guatemala, by Jesse Atkinson, Alain de Janvry, Craig McIntosh, and Elisabeth Sadoulet.

Principal investigators: Alain de Janvry and Elisabeth Sadoulet, UC Berkeley, Craig McIntosh, University of California at San Diego, Bruce Wydick (Phase I), University of San Francisco
Associate researchers: Gustavo Gordillo, Representative, FAO Office for Latin America; Dean Karlan, Economics Department, Princeton University Tomas Rosada and Antonio Romero, University Landivar, Guatemala. Martin Valdivia, Grade, Peru.
Jill Luoto and Greg Rafert, UC Berkeley.
Jesse Atkinson, UC San Diego.
Cooperating institutions: GENESIS and IEDES (Guatemala), COPEME (Peru), CHN (Guatemala)
Financial support from USAID/BASIS, and the FAO Office for Latin America
Project dates: 2003-2011