Bridging the Gap Between Migrants and the Banking System

29 Pages Posted: 10 May 2011

Date Written: February 15, 2011

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

JEL Classification: G21, J15, J71

Suggested Citation

Albareto, Giorgio and Mistrulli, Paolo Emilio, Bridging the Gap Between Migrants and the Banking System (February 15, 2011). Bank of Italy Temi di Discussione (Working Paper) No. 794, Available at SSRN: https://ssrn.com/abstract=1830082 or http://dx.doi.org/10.2139/ssrn.1830082

Giorgio Albareto (Contact Author)

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

Paolo Emilio Mistrulli

Bank of Italy ( email )

Via Nazionale 91
00184 Roma
Italy

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