Consumer Loans, Heterogeneous Interest Rates, and Inequality
Content-Type: Research Paper
Using the Brazilian administrative credit registry data with the universe of all
consumer loans originated by banks in the country from 2013 to 2019, we document
high borrowing interest rates, which vary systematically with individual’s
characteristics. In particular, even after controlling for several observable
individual attributes (such as income, occupation, and default probabilities,
low-income), individuals pay higher interest rates than high-income borrowers.
Financial intermediaries such as banks play a critical role in the economy by
connecting those seeking to borrow with those seeking to save, improving the allocation
of resources with consequences for efficiency and welfare. Consequently,
consumer credit is key to allowing individuals to smooth consumption over time
when they face uninsurable idiosyncratic income risk. Credit markets in developing
countries are characterized by high and dispersed borrowing interest rates
(e.g., Banerjee, 2003; Banerjee and Duflo, 2010). Expensive credit may hinder the
ability of individuals to smooth their consumption.
Using the Brazilian Public Credit Register, which is a confidential loan level dataset,
covering all unsercure credit operations in Brazil from January 2012 to December
2019 and linked with the Brazilian matched employer-employee data set (RAIS), we
document several features of the Brazilian credit market. We focus on two types of
loans, which account for more than 80% of all unsecured consumer loans in Brazil.
