Arbeitspapier

The use of collateral in formal and informal lending

We offer a new test of the ex ante theory of collateral. Theory states that lenders rely less on collateral if they have better information about borrowers. We test this by contrasting the use of collateral between formal and - better informed - informal lenders in a developing financial market. Indeed, formal lenders rely about 40% more often on collateral than informal lenders, controlling for conventional determinants of collateral. Moreover, having better information about borrowers has implications within lender groups: formal lenders rely less on collateral with longer borrower-relationship and informal lenders rely less on collateral with shorter distance to the borrower.

Language
Englisch

Bibliographic citation
Series: Kiel Working Paper ; No. 1879

Classification
Wirtschaft
Banks; Depository Institutions; Micro Finance Institutions; Mortgages
Economic Development: Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
Formal and Informal Sectors; Shadow Economy; Institutional Arrangements
Subject
collateral
informal lenders
private information
relationship lending
distance

Event
Geistige Schöpfung
(who)
Kislat, Carmen
Menkhoff, Lukas
Neuberger, Doris
Event
Veröffentlichung
(who)
Kiel Institute for the World Economy (IfW)
(where)
Kiel
(when)
2013

Handle
Last update
10.03.2025, 11:44 AM CET

Data provider

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Object type

  • Arbeitspapier

Associated

  • Kislat, Carmen
  • Menkhoff, Lukas
  • Neuberger, Doris
  • Kiel Institute for the World Economy (IfW)

Time of origin

  • 2013

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