Does Foreign Bank Penetration Reduce Access to Credit in Developing Countries? Evidence from Asking Borrowers

38 Pages Posted: 3 Oct 2001

See all articles by George R. G. Clarke

George R. G. Clarke

Texas A&M International University - A.R. Sanchez Jr., School of Business

Robert Cull

World Bank - Development Research Group (DECRG)

Maria Soledad Martinez Peria

International Monetary Fund (IMF)

Date Written: September 2001

Abstract

How does entry by foreign banks affect lending to small and medium-size enterprises in developing countries? Analysis of data from a large cross-country survey of enterprises finds that foreign bank entry benefits firms of all sizes, although it seems to benefit larger firms more.

Existing evidence on the effect of foreign bank penetration on lending to small and medium-size enterprises is ambiguous. Case studies of developing countries show that foreign banks lend less to such firms than domestic banks do. But cross-country studies find that foreign bank entry fosters competition and reduces interest rates, benefits that should extend to all firms.

Clarke, Cull, and Martinez Peria use data from a large cross-country survey of enterprises to investigate this issue. Their results suggest that foreign bank penetration improves financing conditions (both the quantities of financing and the terms) for enterprises of all sizes, although it seems to benefit larger firms more.

This paper - a product of Finance, Development Research Group - is part of a larger effort in the group to understand the impact of entry by foreign banks on domestic banking systems in developing countries. The authors may be contacted at gclarke@worldbank.org, rcull@worldbank.org, or mmartinezperia@worldbank.org.

JEL Classification: G21, G32

Suggested Citation

Clarke, George and Cull, Robert and Martinez Peria, Maria Soledad, Does Foreign Bank Penetration Reduce Access to Credit in Developing Countries? Evidence from Asking Borrowers (September 2001). World Bank Policy Research Working Paper No. 2716. Available at SSRN: https://ssrn.com/abstract=285767 or http://dx.doi.org/10.2139/ssrn.285767

George Clarke

Texas A&M International University - A.R. Sanchez Jr., School of Business ( email )

5201 University Blvd.
Laredo, TX 78041-1900
United States

Robert Cull

World Bank - Development Research Group (DECRG) ( email )

1818 H. Street, N.W.
MSN3-311
Washington, DC 20433
United States
202-473-6365 (Phone)
202-522-1155 (Fax)

HOME PAGE: http://econ.worldbank.org/staff/rcull

Maria Soledad Martinez Peria (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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