Mutual Guarantee Institutions and Small Business Finance

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

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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
Place of PublicationTilburg
PublisherFinance
Number of pages35
Volume2009-32 S
Publication statusPublished - 2009

Publication series

NameCentER Discussion Paper
Volume2009-32 S

Keywords

  • credit guarantee schemes
  • group lending
  • joint liability
  • microfinance
  • peer monitoring
  • small business finance

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    Columba, F., Gambacorta, L., & Mistrulli, P. E. (2009). Mutual Guarantee Institutions and Small Business Finance. (CentER Discussion Paper; Vol. 2009-32 S). Finance.