Mutual Guarantee Institutions and Small Business Finance

Paolo Emilio Mistrulli, Leonardo Gambacorta, Francesco Columba
2008 Social Science Research Network  
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
more » ... ibility 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. JEL classification: D82, G21, G30, O16.
doi:10.2139/ssrn.1243523 fatcat:3yl3bkkx6zd5biy4qfl6565qme