Unlocking Credit

Ike Mathur and Isaac Marcelin

A chapter in Risk Management Post Financial Crisis: A Period of Monetary Easing, 2014, vol. 96, pp 221-252 from Emerald Group Publishing Limited

Abstract: Pledging collateral to secure loans is a prominent feature in financing contracts around the world. Existing theories disagree on why borrowers pledge collateral. It is even more challenging to understand why in some countries collateral coverage exceeds, for example, 300% of the value of a loan. This study looks at the association between collateral coverage and country-level governance and various institutional proxies. It investigates the economic implications of steep collateral coverage and sketches policy options to lower ex-ante asymmetric information and ex-post agency problems. Within this framework, should a lender collect the debt forcibly on default and liquidated assets fetch prices below outstanding loan values, the lender’s loss is covered through credit insurance, which would significantly reduce the need for steep collateral coverage. This proposal may increase level of private credit, investment and growth; particularly, in a number of developing countries where collateral spread is the main inhibitor of finance.

Keywords: Collateral spread; credit; institutions; law and finance; G21; D43; E32 (search for similar items in EconPapers)
Date: 2014
References: Add references at CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
https://www.emerald.com/insight/content/doi/10.110 ... d&utm_campaign=repec (text/html)
https://www.emerald.com/insight/content/doi/10.110 ... 9-375920140000096009
https://www.emerald.com/insight/content/doi/10.110 ... d&utm_campaign=repec (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eme:csefzz:s1569-375920140000096009

DOI: 10.1108/S1569-375920140000096009

Access Statistics for this chapter

More chapters in Contemporary Studies in Economic and Financial Analysis from Emerald Group Publishing Limited
Bibliographic data for series maintained by Emerald Support ().