Archives for loans



Hypotheses for an Impact Study on a For-Profit Microlender

Through Innovations for Poverty Action, I am co-Principal Investigator on a randomized trial of the impact of Compartamos, a for-profit microlender in Mexico. Compartamos was the first microcredit organization to go public, and at IPO time had a market capitalization of US$1.5 billion.  Needless to say, that created a lot of buzz.  Several years later, we will soon be finishing a randomized trial to measure the impact on communities in the Nogales area in northern Mexico.We will be posting our hypothesis before we do the analysis, and encourage readers to do the same, for three reasons: Read More »



One Man’s Story of a Very Unwilling Bank

A reader we’ll call H., who’s in the rental-property business, writes in with a bizarre story about his bank. Assuming it is at least 60% true from both sides (his side and the bank’s), what are we to make of this?

My partner and I were looking to obtain a small business loan. Our banker told us that loans are very hard to obtain because banks are being very stringent. Not like we were going to shut down without a loan, but we figured it could help us grow the business. So, in an effort to build credit (and a good relationship) for our business with a major U.S. bank, my partner and I proposed to our banker that we would give him $50,000 cash to hold onto and in return, have the bank loan us $50k for 5 years. Basically we were securing the loan with cash as collateral. This way, we could prove to the bank that we are a responsible business and were hoping that after this first loan, the bank will be willing to lend to us in the future with more favorable terms.

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What Percentage of Microfinance Loans Actually Go to Business Investment?

If someone with a clipboard came up to you in the street and asked you if you secretly harbor racist views, have stolen things in the past, had unprotected sex, or some other illicit behavior, how likely would you be to tell the truth?

Probably not very. This causes havoc for any researcher who wants to study behavior that may deviate from social norms in some way. A survey technique called “list randomization” allows researchers to calculate the average response to a question in a population, without being able to identify the response of any one individual. In theory this gives people the freedom to answer truthfully, knowing that even the interviewer won’t be able to tell what they answered.

This method has indeed been used to measure hidden racism and sexism among American voters, as well as all sorts of bad behavior by American teens.

In a paper, forthcoming in the Journal of Development Economics, Jonathan Zinman and I apply this approach to the question of how the poor spend their microfinance loans. Read More »



Forgive Student Loans? Worst Idea Ever.

There’s an argument going around right now that forgiving the country’s student loan debt would have a stimulative effect on the economy. This online petition by Signon.org, an offshoot of Moveon.org, has nearly 300,000 signatures. Its basic argument is this:

Forgiving the student loan debt of all Americans will have an immediate stimulative effect on our economy. With the stroke of the President’s pen, millions of Americans would suddenly have hundreds, or in some cases, thousands of extra dollars in their pockets each and every month with which to spend on ailing sectors of the economy. As consumer spending increases, businesses will begin to hire, jobs will be created and a new era of innovation, entrepreneurship and prosperity will be ushered in for all.

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