Shadow Banks on the Rise: Evidence Across Market Segments

This paper uses credit bureau data on 648 million retail loans in India to examine the comparative advantages of shadow banks across market segments. Using weather shocks as a proxy for credit demand, we show that Fintechs respond more in uncollateralized markets. In contrast, non-Fintech shadow banks exhibit stronger responsiveness in collateralized markets. Exploiting geographic heterogeneity in the adoption of digital payments, we identify technology as the key advantage for Fintechs. Leveraging four natural experiments, we document the significance of lower regulation for non-Fintech shadow banks. Our results suggest that the comparative advantage of shadow banks differs across market segments.

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