Credit Scoring vs. Expert Judgment - A Randomized Controlled Trial

Developing financial markets experience a swift increase in the availability of borrower-information from credit information sharing systems. I study whether banks can use this information to automate credit decisions. In the wake of a randomized controlled trial, a bank in Africa introduced an automated credit decision-process based on a credit scoring technology at half of its branches, while the other half kept applying an extensive screening procedure as a base for a loan officer's expert judgment. Results show that the quality of the loan Portfolio in the treatment branches did not decrease significantly, at the cost of rejecting only a 6 percentage points higher share of applications, using a much simpler procedure. An analysis of the costs and benefits of the credit scoring system strongly suggests that the bank's cost of lending decreased substantially.