We provide direct evidence on the impact of asymmetric information on both financing and operating activities through a study of credit evaluations of microfinance institutions (MFIs). We employ a regression discontinuity model that exploits the eligibility criteria of an evaluation subsidy offered by a nonprofit consortium. Evaluations dramatically cut the cost of financing. This e ect is strongest for commercial lenders and for short-term MFI-lender relationships. The impact of evaluations on the supply of finance is mixed. Evaluated MFIs lend more eciently, extending more loans per employee. © The Author 2010. Published by Oxford University Press on behalf of The Society for Financial Studies. All rights reserved.