Business Training with a Better-Informed Lender: Theory and Evidence from Microcredit in France
Abstract
In the microfinance sector, experienced lenders enjoy an information advantage over first-time entrepreneurs. Our study proposes an analysis of the business training provided on a par with microloans and its potential effect on borrowers’behavior. First, we present a simple theoretical mechanism showing that an information advantage concerning borrower risk can lead to a non-monotonic relationship between risk and business training provision. Second, using a hand-collected data set of loan applications to a French MFI, we empirically examine the relationship between business training provision and borrower risk, controlling for selection bias and endogeneity. The collected evidence supports the existence of a non-monotonic relationship and shows that business training significantly increases the survival time of loans. Our results are robust to alternative econometric models.
Domains
Economics and FinanceOrigin | Publisher files allowed on an open archive |
---|