Nº 22-50: Graduating from Group to Individual Loans: What Is a Group Credit Record Worth?

Group loans provide entrepreneurs without collateral with a credit record, and graduation to individual credit is when that record becomes relevant for individual borrowing. Using 32 million month-loan observations from the Bolivian credit registry, we find that group loans are larger in total but smaller per borrower, cheaper, longer, and perform better than individual loans. As borrowers accumulate loans, they graduate to individual credit, with loan amount per borrower increasing by more than two thirds. Three quarters of graduations involve a change of lenders. However, the informational value of group-built records does not fully transfer. Borrowers with entirely group-built records perform worse on individual loans than borrowers with individually built records. Upon graduation to individual credit, lenders require more personal guarantors from borrowers with groupbuilt credit histories, particularly at outside lenders. What a credit record is worth depends on the liability structure that produces it.