Factors Affecting Collateralized Borrowing by SMEs: Evidence from Emerging Markets

Abstract

This study aims to enhance the empirical evidence on the determinants of collateralized borrowing by small and medium-sized enterprises (SMEs) by presenting new empirical evidence on emerging market countries. Using the data from World Bank Enterprise Surveys from nine emerging markets, we find that older SMEs are less likely to provide collateral for bank loans. The results also reveal that loans received by firms whose top managers are more experienced in the industry and firms with a higher percentage of material inputs and services purchased on account are less likely to be secured. SMEs in the manufacturing industry are more likely to provide collateral for bank loans than service industry firms. The likelihood that the loan is secured is higher for firms with larger loan sizes. Furthermore, our results indicate that the probability of pledging collateral is higher for SMEs that operate in countries with higher borrower-bank proximity.