The use of collateral in formal and informal lending

Arbeitspapier

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.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Kiel Working Paper ; No. 1879

Classification and Topics

• 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

Contributors, Places and Time

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

Further information

• Handle: http://hdl.handle.net/10419/85071
• Last update: 10.03.2025, 11:44 AM CET