Effects of Collateral Law Reforms on Access to Finance
26 Pages Posted: 15 May 2014 Last revised: 18 May 2014
Date Written: May 15, 2014
It is widely believed that informational frictions coupled with limited abilities of small and medium entrepreneurs to put up collateral reduces allocative efficiency of financial markets in the developing countries. In recent years, initiatives have been put into motion to reform collateral laws in a number of countries. The main objective of these reforms is to relax financing constraints facing smaller firms by enabling them to use hitherto unused movable and intangible assets as collateral. Using firm level survey data from 88 developing countries for the period 2001-2011, the analysis seeks to examine the effects of such reforms on firms’ perception about their access to credit. The results suggest that collateral law reforms are effective in improving perceived access to credit. Moreover the effects are more pronounced when they are accompanied by established collateral registries for movable and intangible assets. Furthermore, the perceived benefit of collateral reforms increases significantly with the firm size. This raises possibility that the effects of reforms are misaligned with its main objective of helping smaller firms.
Keywords: Access to finance, Collateral law reform
JEL Classification: O10, O11
Suggested Citation: Suggested Citation