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 language | English |
|---|---|
| Place of Publication | Tilburg |
| Publisher | Finance |
| Number of pages | 35 |
| Volume | 2009-32 S |
| Publication status | Published - 2009 |
Publication series
| Name | CentER Discussion Paper |
|---|---|
| Volume | 2009-32 S |
Keywords
- credit guarantee schemes
- group lending
- joint liability
- microfinance
- peer monitoring
- small business finance
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Cite this
Columba, F., Gambacorta, L., & Mistrulli, P. E. (2009). Mutual Guarantee Institutions and Small Business Finance. (CentER Discussion Paper; Vol. 2009-32 S). Finance.