Incentivizing Customer Referrals for Bank Loans to Female Entrepreneurs: Evidence from Vietnam

Abstract

This study uses a randomized controlled trial (RCT) to test whether networks can be leveraged to increase lending to growth-oriented women-owned and -led small- and medium-sized enterprise (WSME) borrowers. The RCT is conducted with a leading commercial bank in Vietnam, randomly assigning 50 bank branches to either control or one of the following two treatments: (1) strong incentive for existing customers to refer new WSME borrowers and weak incentive for referred WSMEs to take up the opportunity to become new borrowers; or (2) strong incentive for referred WSMEs and weak incentive for referrals from existing customers. The average loan size in this segment is about $40,000 USD (8x GDP per capita). The RCT consists of five, 60-day intervention phases within a 13-month period. Overall, we find that the treatments case a notable increase in WSME lending, both in number of loans and volume. Effects are largely stable across the treatment phases. Treatment effects tend to co-move between the two treatment arms, both in number of WSME loans, and volume, preventing us from concluding which intervention is more effective (i.e., whether introducer or introducee incentives “matter more”). These results have the potential to inform policies to promote (W)SME lending through organizational innovations, and more broadly provide evidence from a high-stakes, real-world setting on how to leverage business and social networks to gather high-value information.