Collaterals of rural credit in Brazil: Access, loan terms, and default

Alexandre Pinho Menezes, Rafael F. Schiozer and Lucas N. C. Vasconcelos

RAE - Revista de Administração de Empresas, 2023, vol. 63, issue 3

Abstract: This study investigates the relation between the types of collateral offered in rural loans in Brazil and the access to credit, loan conditions and default rates. We use a novel proprietary database of rural loans granted by one of the largest private banks in Brazil containing more than 110 thousand loan observations. Our results show that the use of fiduciary lien, improves the access to loans for more opaque borrowers (i.e., those with shorter relationship with the bank). This type of collateral gives the bank the ability to seize collateral quicker, reducing loss given default, even if these borrowers are riskier, given that they present higher default rates on average. Our results also show that loan conditions are less restrictive as relationship length increases, and that this effect is more intense among loans collateralized by fiduciary lien.

Date: 2023
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