Mutual Guarantee Institutions and Small Business Finance

European Banking Center Discussion Paper No. 2009-05S

CentER Discussion Paper Series No. 2009-32S

35 Pages Posted: 21 May 2009  

Francesco Columba

Bank of Italy

Leonardo Gambacorta

Bank for International Settlements (BIS); Centre for Economic Policy Research (CEPR)

Paolo Emilio Mistrulli

Bank of Italy

Multiple version iconThere are 3 versions of this paper

Date Written: May 18, 2009

Abstract

A large literature showed that small firms experience difficulties in accessing the credit market due to informational asymmetries; these may be mitigated by collateral or relationship lending, possibilities often precluded to small business. We investigate the effect on small business finance of an alternative contractual scheme based on group lending, the Mutual Guarantee Institution (MGI). We test whether firms affiliated to MGIs pay less for credit, due to a joint responsibility that provides affiliates with peer monitoring incentives. Hence, MGI willingness to post collateral signals firms credit-worthiness to banks. Our estimates indicate that indeed MGI affiliation improves small firms lending.

Keywords: credit guarantee schemes, group lending, joint liability, microfinance, peer monitoring, small business finance

JEL Classification: D82, G21, G30, O16

Suggested Citation

Columba, Francesco and Gambacorta, Leonardo and Mistrulli, Paolo Emilio, Mutual Guarantee Institutions and Small Business Finance (May 18, 2009). CentER Discussion Paper Series No. 2009-32S. Available at SSRN: https://ssrn.com/abstract=1406424 or http://dx.doi.org/10.2139/ssrn.1406424

Francesco Columba (Contact Author)

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy
+39-06-47922131 (Phone)
+39-09-47923611 (Fax)

Leonardo Gambacorta

Bank for International Settlements (BIS) ( email )

Centralbahnplatz 2
Basel, Basel-Stadt 4002
Switzerland

Centre for Economic Policy Research (CEPR)

77 Bastwick Street
London, EC1V 3PZ
United Kingdom

Paolo Emilio Mistrulli

Bank of Italy ( email )

Via Nazionale 91
00184 Roma
Italy

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