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Signalling Creditworthiness: Land Titles, Banking Practices, and Formal Credit In Indonesia

Paul Castañeda Dower and Elizabeth Potamites

Bulletin of Indonesian Economic Studies, 2014, vol. 50, issue 3, 435-459

Abstract: Many land titling programs worldwide have produced lacklustre results in terms of achieving access to credit for the poor. This may reflect insufficient emphasis on local banking practices. Bankers commonly seek to ensure repayment by using methods other than securing collateral, such as targeting borrower characteristics that, on average, improve repayment rates. Formal land titles can signal these important characteristics to the bank. Using a household survey from Indonesia, we provide evidence that formal land titles have a positive and significant effect on access to credit and that at least part of this effect is best interpreted as an improvement in information flows. These results stand in contrast to the prevailing notion that land titles function only as collateral. Analysts who neglect local banking practices may misinterpret the observed effect of systematic land titling programs on credit access because these programs tend to reduce the signalling value of formal land titles.

Date: 2014
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Citations: View citations in EconPapers (13)

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Related works:
Working Paper: Signaling Credit-Worthiness: Land Titles, Banking Practices and Formal Credit in Indonesia (2012) Downloads
Working Paper: Signaling Credit-Worthiness: Land Titles, Banking Practices and Formal Credit in Indonesia (2012) Downloads
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DOI: 10.1080/00074918.2014.980376

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Bulletin of Indonesian Economic Studies is currently edited by Firman Witoelar Kartaadipoetra, Arianto Patunru, Robert Sparrow, Sarah Xue Dong and Sean Muir

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