Financial literacy of micro-entrepreneurs and access to credit

Riccardo Calcagno (), Paolo Finaldi Russo (), Ludovica Galotto () and Anita Quas ()
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Riccardo Calcagno: Polytechnic University of Turin
Paolo Finaldi Russo: Bank of Italy
Ludovica Galotto: Bank of Italy
Anita Quas: University of Milan

No 853, Questioni di Economia e Finanza (Occasional Papers) from Bank of Italy, Economic Research and International Relations Area

Abstract: This paper investigates the relationship between the financial literacy of micro-entrepreneurs and their access to bank credit, drawing on data from a survey conducted by the Bank of Italy among a representative sample of Italian companies with fewer than 10 employees. Among those who require some external finance, we explore whether micro-entrepreneurs' financial literacy influences (i) the propensity to apply for the necessary bank loan, and (ii) the likelihood of bank approval. We find that micro-entrepreneurs with higher financial literacy are more likely to apply for a loan, i.e. they are less likely to be 'discouraged borrowers'. However, financial literacy does not significantly affect the likelihood of loan approval. We also shed light on two mechanisms underlying the relationship between financial literacy and borrowers' discouragement: entrepreneurs with higher financial literacy are more likely to seek professional advice and to be aware of the existence of public guarantee schemes in support of SMEs' access to credit, which in turn improve the chances of them applying for a bank loan.

Keywords: financial literacy; access to credit; small and medium-sized enterprises; SME financing; discouraged borrowers (search for similar items in EconPapers)
JEL-codes: G21 G28 G53 L11 (search for similar items in EconPapers)
Date: 2024-06
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