Information, the Cost of Credit, and Operational Eﬃciency: An Empirical Study of Microfinance

Mark J. Garmaise; Gabriel Natividad

doi:10.1093/rfs/hhq021

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Information, the Cost of Credit, and Operational Eﬃciency: An Empirical Study of Microfinance

Mark J. Garmaise¹; Gabriel Natividad^2,3

¹ University of California, Los Angeles · ² The Stern Cardiovascular Foundation · ³ New York University

Review of Financial Studies 2010

We provide direct evidence on the impact of asymmetric information on both financing and operating activities through a study of credit evaluations of microfinance institutions (MFIs). We employ a regression discontinuity model that exploits the eligibility criteria of an evaluation subsidy oﬀered by a nonprofit consortium. Evaluations dramatically cut the cost of financing. This eﬀect is strongest for commercial lenders and for short-term MFI–lender relationships. The impact of evaluations on the supply of finance is mixed. Evaluated MFIs lend more eﬃciently, extending more loans per employee.

DOI: 10.1093/rfs/hhq021
Volume: 23 (6)
Pages: 2560-2590
Language: en
Export: BibTeX
Sources: openalex crossref