Global Workshop on Development Impact Evaluation in Finance and Private Sector Rio de Janeiro, June 6-10, 2011 The Impact of Insolvency Law Information on Borrower Behavior Romania Impact Evaluation Concept Note

Motivation I  Bad borrowers (>60 days late) hide behind insolvency laws  For debt >10,000 Euro, either the debtor or creditor can initiate legal insolvency procedures  After bankruptcy is initiated, interest stops accruing  Frequent bogus receivables fraud  Fee for private Judicial Administrators in bankruptcy have “super-priority” (over banks!)  Introduction in 2010 of “Insolvency Guidelines”

Evaluation Questions  Our aim is to identify: I. The causal effects of learning about the new guidelines on SME borrower:  loan repayment rates  the size and frequency of new loan requests II. The impact of in-person training relative to other delivery mechanisms, such as mail, video, and internet

Evaluation Design  We test the interactive impact of:  Learning about the new law  The delivery mechanism of educating borrowers (lowest) Intervention Cost (highest) Mailing Video E-learning Classroom lecture Cost

Evaluation Design  Data:  Quarterly performance of borrowers: ▪ Change in late payments ▪ Incidence of default ▪ Choice of workout: informal, restructuring, liquidation  New loan requests ▪ Amounts (increase/decrease)

Evaluation Design  Key Features:  Invitation to interventions sent by the creditor ▪ Improved take-up?  Does not require any firm-level surveys

Sampling and Data  Loan-level information from a large Romanian Bank  Sample of ‘marginal’ borrowers that:  Pay late, but have not defaulted  Have arranged informal repayment schedules  Sample groups will be randomize by firm characteristics (e.g. credit rating, size, payment history).

Timeline  Data collection, randomization, and anonymization: Summer 2011  Interventions: September/October 2011  Data Collection from banks: Quarterly, January 2012 to January 2014 Summer 2011 Fall