Mutual guarantee insitutions and small business finance

F. Columba, L. Gambacorta, P.E. Mistrulli

Research output: Contribution to journalArticleScientificpeer-review

38 Citations (Scopus)

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.
Original languageEnglish
Pages (from-to)45-54
JournalJournal of Financial Stability
Volume6
Issue number1
Publication statusPublished - 2010

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    Columba, F., Gambacorta, L., & Mistrulli, P. E. (2010). Mutual guarantee insitutions and small business finance. Journal of Financial Stability, 6(1), 45-54.