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>They created their controlled experiment by altering the algorithm the bank used to evaluate creditworthiness so that some borderline applicants were randomly

>They created their controlled experiment by altering the algorithm the bank used to evaluate creditworthiness so that some borderline applicants were randomly denied loans while other otherwise identical applicants had loans approved. So maybe the banks need to set a higher threshold on who they loan to. This doesn't say much about the effectiveness of microcredit for well-qualified applicants.

cwan 17y ago
You may also be interested in another study done a few years ago that was based on random samplings of high interest rate loans to the poor: http://online.wsj.com/article/SB119388104410378595.html?mod=opinion_main_commentaries http://online.wsj.com/article/SB119388104410378595.html?mod=... Excerpt: "The lender charged its normal rate: 200% APR. The remaining, just-below-the-normal-approval-bar applicants (the "control group") were rejected in line with the lender's normal credit policy. We then tracked both groups over the next six to 27 months, measuring their well-being based on a range of economic, social, health and mental health measures. Applicants who were randomly approved for a loan had higher incomes, less hunger, better credit scores and more positive outlooks than their control group counterparts -- even after paying the high interest rate. Though they had higher than normal default rates, the borderline loans were also profitable for the lender."
mbrubeck 17y ago
Yes, exactly. In fact, this could be interpreted as evidence that the bank's standards are close to ideal. The loans have a basically neutral effect on the marginal borrowers (the only borrowers included in the Dartmouth experiment), which is exactly what you hope to see if you're trying to draw a line between people who would be helped by loans and those who are more likely to be harmed.

3 ms·

>They created their controlled experiment by altering the algorithm the bank used to evaluate creditworthiness so that some borderline applicants were randomly

by tigerthink 17y ago

cwan 17y ago
You may also be interested in another study done a few years ago that was based on random samplings of high interest rate loans to the poor: http://online.wsj.com/article/SB119388104410378595.html?mod=opinion_main_commentaries http://online.wsj.com/article/SB119388104410378595.html?mod=... Excerpt: "The lender charged its normal rate: 200% APR. The remaining, just-below-the-normal-approval-bar applicants (the "control group") were rejected in line with the lender's normal credit policy. We then tracked both groups over the next six to 27 months, measuring their well-being based on a range of economic, social, health and mental health measures. Applicants who were randomly approved for a loan had higher incomes, less hunger, better credit scores and more positive outlooks than their control group counterparts -- even after paying the high interest rate. Though they had higher than normal default rates, the borderline loans were also profitable for the lender."
mbrubeck 17y ago
Yes, exactly. In fact, this could be interpreted as evidence that the bank's standards are close to ideal. The loans have a basically neutral effect on the marginal borrowers (the only borrowers included in the Dartmouth experiment), which is exactly what you hope to see if you're trying to draw a line between people who would be helped by loans and those who are more likely to be harmed.