You Can Pick Your Friends, But You Need to Watch Them: Loan Screening and Enforcement in a Referrals Field Experiment

We examine a randomized trial that allows separate identification of peer screening and enforcement of credit contracts. A South African microlender offered half its clients a bonus for referring a friend who repaid a loan. For the remaining clients, the bonus was conditional on loan approval. After approval, the repayment incentive was removed from half the referrers in the first group and added for half those in the second. We find large enforcement effects, a $12 (100 Rand) incentive reduced default by 10 percentage points from a base of 20%. In contrast, we find no evidence of screening.


Issue Date:
2012-01
Publication Type:
Working or Discussion Paper
PURL Identifier:
http://purl.umn.edu/121674
Total Pages:
38
JEL Codes:
C93; D12; D14; D82; O12; O16
Series Statement:
Economic Growth Center Discussion Paper
1009




 Record created 2017-04-01, last modified 2017-08-26

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