Collateral in Emerging Economies

Most theoretical and empirical models have shown that pledging collateral is a necessary condition for access to finance. In this chapter, we analyse the role of collateral in a cross-country sample of emerging markets compiled from data found in the Business Environment Survey. We investigate the role of collateral both at the firm- and country-specific level, and we provide a robustness analysis on a subsample of the dataset. Our main findings suggest that the role of country-specific factors in emerging economies is more important than the role of firm-specific factors for determining the collateralisation of a loan. However, these results are different if we consider the dimension of the firms. The country-specific factors are more significant for small- and medium-size enterprises, and the firm-specific factors are more important for large firms. These results have important policy implications for mutual guarantee societies. In fact, as information-sharing institutions, mutual guarantee societies could (i) mitigate the risks of banks and (ii) help maximise the capacity to leverage public resources.