Contractual Structure, Borrower Selection, and Hypothetical Loan Demand: Survey Evidence from Uganda

Research Note
Published on 17 June 2014


Using survey data on micro and small enterprises in Uganda, this study investigates the phenomenon of ‘adverse selection’ in credit markets – i.e. the presence of high-risk, low-return borrowers in the client base of microfinance institutions – and finds that lower interest rates and less stringent collateral requirements are likely to attract safer borrowers.