Do Collateral Theories Work in Social Banking?

Abstract

We study the determinants of collateralisation on the universe of credit files of non individual borrowers in a "Grameen's type" Bank (Banca Popolare Etica) which aims to reconcile eeconomic sustainability with the pursuit of social goals.

The extremely high share of uncollateralized loans (around 42 percent) appears consistent with a multistakeholder (customer oriented) approach which internalises the welfare costs of default of collateralised borrowers. Econometric findings document that collateralisation depends positively on ex ante borrower's risk (proxyed by non performing past track record) and, negatively, on relationship lending. The incentive effect seems to work since collateralised borrowers are ex ante, but not ex post, riskier.

Keywords: collateral, bank-firm relationship, credit risk

JEL Classification: G21