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Author (s):
Heywood Fleisig
Date:
April 1995
Publication (if applicable):
Public Policy for the Private Sector
Abstract (if Available):
When World Bank staff design credit programs in developing countries, they often find that lenders in the formal banking sector show little interest in small farms and businesses. Although their reluctance to lend is especially great for very small operators, such as artisans, street vendors, and subsistence farmers, surprisingly, it extends even to more substantial operations with several employees. Many explanations for this behavior have been posited, including banks? innate conservatism, the high unit costs of small loans, class differences between bank officers and small borrowers, excessively conservative bank regulation, and excessively loose bank regulation that permits bank lending to related parties, crowding out the smaller, presumably unrelated, borrowers. But another important explanation for this lending behavior lies in the laws, regulations, and institutions of these countries. Though these may often spring from efforts to protect unwary borrowers or the poor, they can instead force borrowers out of the formal banking system and into the hands of the very lenders from whom they were supposed to be protected. This Note, based on the results of Bank analysis, shows how such legal, regulatory, and institutional barriers limit access to credit.
URL:
http://rru.worldbank.org/documents/publicpolicyjournal/044fleisi.pdf
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