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Bridging the gap between migrants and the banking system

Giorgio Albareto () and Paolo Emilio Mistrulli ()

No 794, Temi di discussione (Economic working papers) from Bank of Italy, Economic Research and International Relations Area

Abstract: In this paper, we test whether micro firms run by migrants pay more for credit than firms run by natives and whether the differences in the cost of credit for these two groups of entrepreneurs decrease as the informational and cultural gaps narrow. We employ a large and unique data set providing us with detailed information on each overdraft loan granted by banks to sole proprietorships based in Italy. We find that migrants pay, on average, almost 70 basis points more for credit than natives. The interest rate differential is lower for entrepreneurs born in Italy whose parents were natives of other countries (�second generation� migrants) and for migrants whose parents were natives of Italy (�Italian migrants�). These results suggest that cultural differences may matter for the functioning of the credit market. A lengthening of credit history reduces the interest rate differential between the two types of entrepreneurs. Finally, we find that both increases in the size of the migrant community and improvements in banks� ability to deal with cultural diversity help narrow the interest rate differential between migrant and Italian entrepreneurs.

Keywords: migration; bank lending; interest rates (search for similar items in EconPapers)
JEL-codes: G21 J15 J71 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ban, nep-ent and nep-mig
Date: 2011-02
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Working Paper: Bridging the gap between migrants and the banking system (2010) Downloads
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