Abstract
In this study, we argue that racial discrimination exists in the credit markets in Latin American countries, particularly in Mexico, despite the subject of ethnicity being taboo. We have designed and conducted an experiment to verify the existence of racial discrimination in the access to the credit market in Mexico. In particular, because of the nature of the experiment, we have concentrated on the first step of the credit application process, namely, the inquiry process. We hired three professional pairs of Mexican actors that consisted of one white, Spanish member and one dark-skinned, mestizo member. These pairs impersonated small entrepreneurs with the same qualities and creditworthiness. The actors visited close to 300 randomly selected commercial banking branches in Mexico City to apply for credit. The results provide evidence of discriminatory behavior against dark-skinned Mexicans even after controlling for features such as their creditworthiness, annual sales, and industry as well as loan officers’ demographics and styles, among others.
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Notes
The government development bank provides these performance indicators.
In this sense, in contrast to advanced nations, the majority (i.e., the mestizo) not the minority (whites) is the one subject to discrimination.
The study was subject to different criticisms; see Browne and Tootell (1995).
Desai and Mollick (2014), while not addressing race, find that border cities in Mexico and the US are closely related even in credit markets. When the economies of border cities are not synchronized, bankruptcy rates are affected. The effect is favorable for the US border cities when the sister cities in Mexico are booming. The opposite holds.
Only recently did the National Institute for Statistics consider the race question in the novel Social Mobility Survey of 2016. Nonetheless, no question regarding credits was included.
We asked actors to provide the name of the loan officer they met in each branch. The information shows that in a minority of cases the loan officer interviewed was the same. To compensate for the impossibility to ensure both actors in each pair met the same loan officer, the questionnaire asked about the demographics of the loan officer that allowed us to control for characteristics such as gender, age group, skin color, and weight.
We ruled out self-discrimination because we selected extroverted, self-confident actors during the auditions. Furthermore, actors were trained on what we consider as rejection, discrimination, and generally negative perception that allowed all testers to have in mind the same concept. Needless to say, these tactics minimized the problem, but the problem will never be completely solved.
Bank 5 is the one that consistently obtained the lowest proportions of discrimination variables.
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Acknowledgements
We appreciate the comments received from Eva Arceo, Gustavo del Angel, Mariana Olvera, Paula Leite, Edwin Tapia, an anonymous referee, the editor N. Prabhala; and seminar participants at CIDE, the National Institute for the Prevention of Discrimination, the Mexican Institute of Competitiveness, ITESM, and the University of Coahuila. Finally, we thank CIDE for its financial support. We are solely responsible for any errors.
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Hernández-Trillo, F., Martínez-Gutiérrez, A.L. The Dark Road to Credit Applications: The Small-Business Case of Mexico. J Financ Serv Res 62, 1–25 (2022). https://doi.org/10.1007/s10693-021-00356-x
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DOI: https://doi.org/10.1007/s10693-021-00356-x