Cash Flow vs. Collateral-Based Credit: Performance of Micro, Small and Medium-Sized Firms in Transition Economies

Economics of Transition, Vol. 21 (2) 2013, pp. 269–300

32 Pages Posted: 3 Apr 2013

See all articles by Francesca Cassano

Francesca Cassano

Independent

Karin Jõeveer

Tallinn University of Technology (TUT)

Jan Svejnar

School of International and Public Affairs, Columbia University, NY, USA; CEPR; IZA; CERGE-EI; University of Ljubljana

Date Written: April 2, 2013

Abstract

We study factors affecting micro, small and medium-sized enterprises (MSMEs) receiving loans and the effect of these loans on MSMEs performance. We study two types of loans – a new type based on cash flows and a traditional-style loan based on collateral. We use unique surveys of MSMEs from Bulgaria, Georgia, Russia and Ukraine. We find that MSMEs receiving a cash flow or collateral loan in the past are more likely to receive the same type of loan (and larger sized) in the future and that cash flow loans may be the preferred form of credit. Both types of loans are related positively to most performance indicators, enabling the MSMEs for instance to be more profitable and expand production. The cash flow loans also appear to be particularly attractive credit delivery schemes for micro and small enterprises. Finally, the effects of the smallest loans are often negative, suggesting that the minimum loan size is an important policy issue.

Keywords: Micro, small and medium-sized enterprises, bank credit, firm performance, emerging markets

JEL Classification: G21, G31, O16

Suggested Citation

Cassano, Francesca and Jõeveer, Karin and Svejnar, Jan, Cash Flow vs. Collateral-Based Credit: Performance of Micro, Small and Medium-Sized Firms in Transition Economies (April 2, 2013). Economics of Transition, Vol. 21 (2) 2013, pp. 269–300, Available at SSRN: https://ssrn.com/abstract=2243863

Francesca Cassano

Independent

Karin Jõeveer

Tallinn University of Technology (TUT) ( email )

Ehitajate tee 5
Tallinn, 12618
Estonia

Jan Svejnar (Contact Author)

School of International and Public Affairs, Columbia University, NY, USA ( email )

420 West 118th Street
New York, NY 10027
United States

CEPR

London
United Kingdom

IZA

P.O. Box 7240
Bonn, D-53072
Germany

CERGE-EI

P.O. Box 882
7 Politickych veznu
111 21 Prague 1, Prague
Czech Republic

HOME PAGE: http://www.cerge-ei.cz

University of Ljubljana ( email )

Dunajska 104
Ljubljana, 1000
Slovenia

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