Publication

This paper tests the theory that lenders rely less on collateral if they are better informed about those who wish to borrow. The authors find that formal lenders rely about 40 percent more often on collateral than informal lenders. They also state that having better information about borrowers has implications within lender groups: formal lenders rely less on collateral when the relationship with their borrowers exits over the long term and informal lenders do the same when there is a shorter distance between themselves and the borrower.