Expanding Financial Access Via Credit Cards: Evidence from Mexico

83 Pages Posted: 1 Aug 2018 Last revised: 26 May 2021

See all articles by Sara Castellanos

Sara Castellanos

Banco de México

Diego Jiménez Hernández

Stanford University

Aprajit Mahajan

Stanford University; University of California, Berkeley - Department of Agricultural & Resource Economics; National Bureau of Economic Research (NBER)

Enrique Seira

Instituto Tecnológico Autónomo de México (ITAM) - Centro de Investigacion Economica

Date Written: July 2018

Abstract

Credit card debt is increasingly common among poor and inexperienced borrowers – thus de facto a financial inclusion product. However, it remains relatively under-studied. We use detailed card level data and a product that accounted for 15% of all first-time formal loans in Mexico and show that default rates are high and ex-ante unpredictable for new borrowers – suggesting an important role for ex-post contract terms in limiting risk. However, using a large nation-wide experiment we find that default is unresponsive to minimum payment increases, a commonly proposed policy remedy. We provide evidence that the zero result is driven by the offsetting effects of tightened liquidity constraints and lower debt burdens. Surprisingly, we also find muted default responses to large experimental changes in interest rates – suggesting a limited role for ex-post moral hazard in our context. Finally, we use job displacements to document large effects of unemployment on default, highlighting the centrality of idiosyncratic shocks as a barrier to the expansion of formal credit among poorer populations.

Suggested Citation

Castellanos, Sara and Jiménez Hernández, Diego and Mahajan, Aprajit and Seira, Enrique, Expanding Financial Access Via Credit Cards: Evidence from Mexico (July 2018). NBER Working Paper No. w24849, Available at SSRN: https://ssrn.com/abstract=3218101

Diego Jiménez Hernández

Stanford University ( email )

579 Serra Mall
Stanford, CA 94305
United States

HOME PAGE: http://web.stanford.edu/~jimenezh/

Aprajit Mahajan

Stanford University ( email )

Stanford, CA 94305
United States

University of California, Berkeley - Department of Agricultural & Resource Economics ( email )

Berkeley, CA 94720
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Enrique Seira

Instituto Tecnológico Autónomo de México (ITAM) - Centro de Investigacion Economica ( email )

Av. Camino a Santa Teresa #930
Col. Heroes de Padierna
Mexico City, D.F. 10370
Mexico

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