Cultural proximity and loan outcomes

Raymond Fisman, Daniel Paravisini, Vikrant Vig

Research output: Contribution to journalArticlepeer-review

130 Scopus citations


We present evidence that cultural proximity (shared codes, beliefs, ethnicity) between lenders and borrowers increases the quantity of credit and reduces default. We identify in-group lending using dyadic data on religion and caste for officers and borrowers from an Indian bank, and a rotation policy that induces exogenous matching between them. Having an in-group officer increases credit access and loan size dispersion, reduces collateral requirements, and induces better repayment even after the in-group officer leaves. We consider a range of explanations and suggest that the findings are most easily explained by cultural proximity serving to mitigate information frictions in lending.

Original languageEnglish (US)
Pages (from-to)457-492
Number of pages36
JournalAmerican Economic Review
Issue number2
StatePublished - Feb 2017

ASJC Scopus subject areas

  • Economics and Econometrics


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