In development economics, demand elasticities shed light on the importance of interest-rate subsidies and ceilings designed to increase access to credit and on microfinance institution pricing strategies for improving sustainability and outreach. Nonetheless, generations of studies have produced little consensus on the magnitude of consumer sensitivity to interest rates.

Information asymmetries are important in theory but difficult to identify in practice. We estimate the presence and importance of adverse selection and moral hazard in a consumer credit market using a field experiment. This experiment, conducted on 3 randomized groups, permits identification of specific types of private information problems, distinguishing adverse selection from moral hazard effects on repayment and thereby generating unique evidence on the existence and magnitudes of specific credit market frictions.

IPA randomizes 58,000 direct mail offers issued by a major South African lender along three dimensions: 1) an initial "offer interest rate" featured on a direct mail solicitation; 2) a "contract interest rate" that was revealed only after a borrower agreed to the initial offer rate; and 3) a dynamic repayment incentive that extended preferential pricing on future loans to borrowers who remained in good standing.