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Finance and inequality: the distributional impacts of bank credit rationing

Choudhary, M. Ali and Jain, Anil (2022) Finance and inequality: the distributional impacts of bank credit rationing. Journal of Financial Intermediation, 52. ISSN 1042-9573

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Identification Number: 10.1016/j.jfi.2022.100997

Abstract

We analyze reductions in bank credit using a natural experiment where unprecedented flooding in Pakistan differentially affected banks that were more exposed to the floods. Using a unique data set that covers the universe of consumer loans in Pakistan and this exogenous shock to bank funding, we find two key results. First, following an increase in their funding costs, banks disproportionately reduce credit to borrowers with little education, little credit history, and seasonal occupations. Second, the credit reduction is not compensated by relatively more lending by less-affected banks. The empirical evidence suggests that a reduction in bank monitoring incentives caused the large relative decreases in lending to these borrowers.

Item Type: Article
Official URL: https://www.sciencedirect.com/journal/journal-of-f...
Additional Information: © 2022 Elsevier Inc
Divisions: Centre for Economic Performance
Subjects: H Social Sciences > HG Finance
H Social Sciences > HB Economic Theory
JEL classification: G - Financial Economics > G2 - Financial Institutions and Services > G21 - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
G - Financial Economics > G2 - Financial Institutions and Services > G28 - Government Policy and Regulation
O - Economic Development, Technological Change, and Growth > O1 - Economic Development > O16 - Economic Development: Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
Date Deposited: 10 Nov 2022 15:03
Last Modified: 25 Dec 2022 01:03
URI: http://eprints.lse.ac.uk/id/eprint/117282

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