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  5. Formal and Informal Finance in Developing Countries
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Formal and Informal Finance in Developing Countries

Paper Session

Saturday, Jan. 6, 2024 10:15 AM - 12:15 PM (CST)

Grand Hyatt, Travis A
Hosted By: Econometric Society
  • Chair: Sean Higgins, Northwestern University

Banks' Physical Footprint and Financial Technology Adoption

Lucas Argentieri Mariani
,
University of Milano-Bicocca
Jose Renato Haas Ornelas
,
Central Bank of Brazil
Bernardo Guerra Ricca
,
Insper

Abstract

Do physical bank branches moderate the diffusion of digital payment technologies? Does the diffusion of an efficient and inclusive digital payment technology allow fintechs to increase their presence? To answer these questions, we leverage bank heists that use explosives and render branches temporarily inoperable. We provide evidence that these attacks are not associated with local crime trends and that they deplete the branches’ cash inventory. Moreover,we showthat they lead to persistent increases in digital payments usage and that a smaller cash dependence boosts digital institutions’ growth not only in payments but also in credit markets.

Microcredit and Informal Risk Sharing: Experimental Evidence from the Village Banking Program in China

Shu Cai
,
Jinan University

Abstract

This study examines the impacts of a large-scale government-led microcredit program on informal risk sharing among poor households in rural China using a randomized controlled trial. The results show that access to microcredit reduced informal borrowing for an average household in treatment villages. In particular, informal borrowing decreased substantially for program members, regardless of whether or not they had borrowed from the program. Further analyses suggest that the program alleviated households’ dependence on informal borrowing to deal with consumption shocks for program members who did not borrow from the program. Meanwhile, for such households, the crowding-out effect on informal borrowing existed even during the program’s announcement period. These results are consistent with the theoretical prediction that access to microcredit raises the expected utility of autarky relative to that derived from risk-pooling arrangements, and thus reduces risk-sharing contracts in the presence of limited commitment.

Gradual Optimization Against Heterogeneous Moral Hazard: Evidence from a Fintech Lending Firm

Chengzheng Li
,
Jinan University
Xiang Ma
,
Southwestern University of Finance and Economics
Kangkai Wang
,
Peking University

Abstract

We relate a Fintech lending firm’s actual behavior to its borrowers’ heterogeneity in moral hazard. We analyze unique loan-level data from this firm, quantify moral hazard and heterogeneity in moral hazard between borrowers with high education and those with low education, and calculate optimal loan caps. We find that the firm’s daily average loan size was not far from the optimal cap. Moreover, it gradually moved from one size more optimal for the low education to one more optimal for the high education. The firm also gradually selected more borrowers with high education, because they were less prone to moral hazard.

Discussant(s)
Sean Higgins
,
Northwestern University
Emma Riley
,
University of Michigan
Hossein Alidaee
,
Harvard University
Sasha Indarte
,
University of Pennsylvania
JEL Classifications
  • O1 - Economic Development
  • G5 - Household Finance