 Mutual guarantee institutions and small business financeFrancesco Columba, Leonardo Gambacorta and Paolo Emilio Mistrulli Journal of Financial Stability, 2010, vol. 6, issue 1, 45-54 Abstract: A large body of literature has shown that small firms experience difficulties in accessing the credit market due to informational asymmetries. Banks can overcome these asymmetries through relationship lending, or at least mitigate their effects by asking for collateral. Small firms, especially if they are young, have little collateral and short credit histories, and thus may find it difficult to raise funds from banks. In this paper, we show that even in this case, small firms may improve their borrowing capacity by joining Mutual Guarantee Institutions (MGI). Our empirical analysis shows that small firms affiliated to MGIs pay less for credit compared with similar firms. We obtain this result for interest rates charged on loan contracts which are not backed by mutual guarantees. We then argue that our findings are consistent with the view that MGIs are better at screening and monitoring opaque borrowers than banks are. Thus, banks benefit from the willingness of MGIs to post collateral since this implies that firms are better screened and monitored. Keywords: Credit; guarantee; schemes; Joint; liability; Microfinance; Peer; monitoring; Small; business; finance (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:finsta:v:6:y:2010:i:1:p:45-54 Access Statistics for this article Journal of Financial Stability is currently edited by I. Hasan, W. C. Hunter and G. G. Kaufman More articles in Journal of Financial Stability from Elsevier |
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