High Collateral Requirements Research Articles

Female-owned businesses and access to finance: evidence from the Ghanaian non-traditional export sector

This study uses data from a sample of Ghanaian non-traditional exports (NTEs) to determine differences in obtaining formal finance between male and female-owned firms. Findings revealed that there is adverse discrimination in the lending process placing women at a disadvantage. Women are either unfairly denied credit or discouraged in the credit application process with the end result that they are less likely to obtain formal loans. In addition, women do not network as effectively as men. Thus, they do not have the same access to sources of information and capital. Female-owned businesses tend to rely on informal finance sources because of the unwillingness of the formal sector to lend to them. Female-owned clients are also effectively shut out from the formal market due to high collateral requirements and high minimum deposit requirements. There is therefore a high conformity of the results of this study with similar studies in other parts of the world. Recommendations are made in this regard. Gender and Behaviour Vol. 4(1) 2006: 508-521

Multiple versus Single Banking Relationships in an Emerging Market: Some Taiwanese Evidence

This study examines the relationship between how firms borrow from banks and various corporate financial characteristics in an emerging economy. Using Taiwanese listed firms over the 1990-2002 period, we find, on the one hand, that older firms tend to maintain a close relationship with a single bank without private information disclosure (i.e. without public debt), in order to benefit from efficient monitoring and avoid information leakage. Larger firms, on the other hand, tend to maintain multiple relationships with banks (requiring duplicate or inefficient monitoring and higher agency costs) with public debt (i.e. private information disclosure). Furthermore, older firms seem to exhibit higher profitability than larger firms. Firms with multiple banking relationships appear to have higher leverage, lower performance (Tobin's Q), higher bank debt ratios, lower fixed assets ratios, and higher collateral requirements than those firms with close single banking relationships. Firms with single banking relationships seem to have stronger financial structures and better loan terms than firms with multiple banking relationships. When firms choose to issue public debt, those with single banking relationships will suffer as a result of severely unfavorable loan terms such as higher collateral required and higher earnings volatility. However, on the other hand, they will exhibit a better financial structure, such as a higher Tobin's Q, lower financial risk (leverage) and lower bank debt ratios among all of the sub-groups. Hence, efficient monitoring associated with private information disclosure to the public will lead to better financial characteristics of firms. However, once this close relationship is broken due to the issue of public debt, unfavorable collateral requirements will follow. Interestingly, when firms that maintain multiple banking relationships choose to issue public debt, this sub-group will appear to have the worst financial structure, such as the lowest Tobin's Q, highest financial risk (leverage) and highest bank debt ratios among all the sub-groups. Hence, inefficient monitoring associated with the disclosure of private information to competitors will result in the worst financial characteristics of firms.

Banking (Conservatively) with Optimists

Commercial banks frequently encounter optimistic entrepreneurs whose perceptions are biased by wishful thinking. Bankers are left with a difficult screening problem: separating realistic entrepreneurs from optimists who may be clever, knowledgeable, and completely sincere. We build a game-theoretic model of the screening process. We show that although entrepreneurs may practice self-restraint to signal realism, competition may lead banks to be insufficiently conservative in their lending, thus reducing capital-market efficiency. High collateral requirements decrease efficiency further. We discuss bank regulation and bankruptcy rules in connection with the problems that optimistic entrepreneurs present.

Sex differences in access to a small enterprise development fund in Peru

In an attempt to ensure that the direct benefits of an urban small enterprise project were reaching women, the Industrial Bank of Peru undertook a study of the constraints to women's access to a major credit program it had initiated in the squatter settlements ( pueblos jo´venes) of Lima. The study found that the low proportion of women among the program's borrowers was not due to more women being rejected when they applied for loans, but to the fact that few women applied. High collateral requirements and complicated application procedures deterred women from applying. Those women who did apply received smaller loans than men and were concentrated in garment manufacture, services and commerce. Taking these factors into account, the authors make recommendations for ways to enhance women's participation in the credit scheme and similar small enterprise programs in the developing countries.