Geographic diversification and credit supply in times of trouble: evidence from microlending

Davide Castellani, Joana Da Silva Afonso

Research output: Working paper

Abstract

We investigate the impact of geographic diversification on the provision of credit during a financial bust. We find that during the Nicaraguan microlending crisis, lenders reduced overall credit provision but to a lesser extent to those geographic areas that contributed most to geographic diversification in the pre-crisis period. This mitigation effect was greater for those lenders that were more geographically diversified before the onset of the crisis; and for lenders with a larger portfolio per credit officer (or a higher number of borrowers per credit officer). The latter type of lenders went through a rapid deterioration of the portfolio quality during the crisis period. Geographic diversification can contribute to mitigating the downsides of excessive risk-taking.
Original languageEnglish
PublisherSocial Science Research Network
DOIs
Publication statusPublished - 29 Jul 2019

Keywords

  • microcredit crises
  • geographic diversification
  • credit monitoring

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