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March 2016

Psychometrics as a tool to improve screening and access to credit

Miriam Bruhn's picture

Small and medium enterprises (SMEs) often face financial constraints because they lack audited statements and other information about their operations, and as a result, financial institutions have difficulties assessing the risk of lending to them. Studies have shown that information sharing, credit bureaus, and credit scoring can increasing credit to SMEs, but not all countries have well-developed credit bureaus that gather the level of information needed to build a reliable credit-scoring model. For example, the average credit bureau in Latin America and the Caribbean complies with only half of best practices and covers only 40.5 percent of the adult population (Doing Business Report 2016).

The political economy of bank lending: evidence from an emerging market

Claudia Ruiz's picture

Our paper studies the existence of political rents in bank lending in Mexico. Unlike prior studies examining political rent seeking in public sector banks, we focus on an economy with a fully privatized banking sector where the existence of political rent seeking is not obvious.

The data that we use corresponds to the universe of commercial bank loans in Mexico from 2003 to 2012. We classify firms as politically connected if they are located in a state that elected a senator who at a particular time chaired an important senate committee. 1 We then narrow down our definition of political connection by focusing on firms that, in addition to being headquartered in the same state, operate in an industry related to the purview of the chairman’s commission, or are located in the same municipality in which the chairman lives. Having this classification of political connection allows us to exploit within-firm variation over time, and compare a firm’s loan terms and performance when it is politically connected and when it is not.