Information Technology and Credit: Evidence from Public Guarantees

This paper investigates whether banks’ information technology (IT) can substitute for local branch presence in the provision of small business credit. Our identification strategy relies on loan-level data and the unique institutional features of the Italian public guarantee scheme during COVID-19. Despite the availability of online applications and low screening incentives, small business lending remains local even for first-time borrowers. However, IT partly mitigates the impact of local branch presence: banks with better IT provide more, cheaper, and faster guaranteed loans and lend more in areas where they have no bank branches, especially to first-time borrowers.