Business, Management and Accounting
4 years ago

Formal lenders rely more on collateral, impacting access to credit.

VfS Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order
The use of collateral in formal and informal lending
Carmen Kislat, Lukas Menkhoff, Doris Neuberger

Paper Summary

The study looked at how formal and informal lenders use collateral when giving out loans. Formal lenders tend to rely more on collateral, even when they have more information about borrowers. Relationship lending helps formal lenders trust borrowers more over time, while informal lenders trust borrowers more when they are closer.

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