Working Papers:

Knowing what’s good for you: Can a repayment flexibility option in microfinance contracts improve repayment rates and business outcomes? JOB MARKET PAPER [PDF]

with Parul Agarwal (IFMR-LEAD)

IGC Blog Post  IGC Project Webpage  AEA RCT Registry

Abstract: Repayment flexibility in microfinance contracts can enable clients to undertake higher return projects that have more irregular payment streams. But there is the risk of increased default due to time-inconsistent or excessively risky borrower behavior. How severe is this default risk and can it be mitigated simply by using contract price as a screening mechanism? To examine this we implement a randomized experiment with microfinance borrowers in Uttar Pradesh, India. In treated branches, borrowers select between the standard, rigid contract and a more expensive flexible contract. In control branches, customers are only offered the standard rigid contract. Clients in treated branches have higher repayment rates than control branches. We also find higher business sales in treatment compared to control group. Selection is an important mechanism – in treated branches, time-consistent and more financially disciplined borrowers are significantly more likely to opt for the flexible repayment schedule.

Does your neighbour know you better? The supportive role of local banks in the financial crisis

Revised & Resubmitted  (2nd round), Journal of Banking and Finance [PDF]

with Carlotta Rossi (Bank of Italy)

Abstract: Relationship lending allows local banks to collect private information about their customers and to mitigate information asymmetries that often lead to credit rationing. In this paper, we argue that soft information collected through relationship lending favors lending decisions even when borrowers’ quality is poor from a “hard-information” perspective. We compare the behavior of local versus non-local banks using data before and after the Great Recession. We exploit the heterogeneity in banks’ reliance on soft information to study how their lending strategies changed when firms’ hard-information indicators deteriorated after the outbreak of the financial crisis. Our paper shows that firms predominantly funded by local banks reported lower credit rationing during the Great Recession. Local banks were also less likely to terminate existing relationships with their customers during the financial crisis, suggesting that they continued funding their clients even when borrowers’ balance sheet variables worsened. We rule out alternative hypotheses explaining our results, such as demand effects, “zombie-lending” behavior, or different impacts the financial crisis had on the credit supply of local versus local firms. This leads us to conclude that thanks to their greater reliance on soft information, local lenders supported their customers to a higher extent during bad times.

Risk aversion and signalling in single and multiple-bank lending

R&R Experimental Economics [PDF]

with Tania Treibich (Maastricht University)

Abstract:  This paper studies the conditions under which banks prefer to engage in single versus multiple bank lending relationships. Our theoretical model supports the view that relationship lending and risk aversion operate as opposite forces in the choice for the optimal number of bank links. We test our hypotheses in an experimental credit market in which we vary the quality of lenders’ information upon borrowers’ default strategies. Our results suggest that risk-management factors can explain why multiple lending is observed in strong enforcement environments.

Foreign Banks as Shock Absorbers in the Financial Crisis? (2017) [PDF]

National Bank of Belgium Working Paper version

Abstract: This paper shows that foreign banks can act as a buffer against negative credit supply shocks, in countries where the domestic banking sector is “too big to be rescued” by the national government. Using Belgian Credit Register data, I find that after 2008, foreign banks lent more than Belgian domestic banks, even when implementing the Khwaja and Mian (2008)’s loan-level estimator to absorb demand shocks. At the extensive margin, foreign banks were more selective than domestic banks in starting new relationships, and turned down existing relationships less frequently with higher-quality firms. Results from this paper suggest that foreign banks helped better-performing firms access credit during the temporary difficulty of the domestic banking sector. In addition, my findings are compatible with a “moral suasion” story, where the Belgian regulators pressured domestic banks to lend to certain firms, despite these were less performing.


Repayment Flexibility in Microfinance Contracts: Theory and Experimental Evidence on Take-Up and Selection

Journal of Economic Behavior & Organization (2017), n. 142, pp. 425-450.

Financial Inclusion in a Developed Country: an Experiment about Formal Savings in Italy

with Alessandra Cassar (USF) and Timothée Demont (University of Marseille)

Journal of Behavioral Economics for Policy (2017), n. 1, pp. 39-49.

AEA RCT Registry

Adverse Selection and Moral Hazard in Joint-Liability Loan Contracts: Evidence from an Artefactual Field Experiment

with Alessandra Cassar (USF), Arturo Rodriguez Trejo (USF) and Bruce Wydick (USF)

Journal of Economics and Management (2013), n. 9, pp. 153-184.

University of Chicago Special Issue on Field Experiments in Economics and Management, Guest Editors: John List, Micheal Price, Anya Samek

Signalling through Joint-Liability: an Adverse Selection Model

Rivista Italiana degli Economisti (2013), n. 18, pp. 299-318.

Special Issue on Social Cohesion and Financial Exclusion, Guest Editors: Leonardo Becchetti, Arnold W. Boot, Robert Lensink, Alberto Zazzaro

Selected Work-in-Progress:

Evaluating the economic impacts of rural banking: Evidence from Southern India, with Erica Field (Duke University) and Rohini Pande (Harvard University), manuscript preparation.

The role of repeated trainings for the correct usage of household green products: A field experiment in rural India, with Anca Balietti (Harvard University), Rohini Pande (Harvard University), Dan Sweeney (MIT) and Parul Agarwal (IFMR-LEAD), baseline ongoing

Featured on IndiaSpend and Business Standard

The Anatomy of Cultural Bias in Lending, with Antonio Accetturo (Bank of Italy), Michele Cascarano (Bank of Italy), Emilia Garcia-Appendini (University of Zurich) and Francesca Modena (Bank of Italy), manuscript preparation

Expanding Credit Access to MSMEs: Evidence from India, with Parul Agarwal (IFMR-LEAD), endline ongoing