Collateral Requirements of SMEs: The Evidence from Less-Developed Countries

This paper aims to investigate the determinants of collateral requirements for loans that are extended to small and medium-sized enterprises in less-developed countries. Our primary data source consists of the results from firms in Eastern Europe and Central Asia from the Business Environment and Enterprise Per- formance Survey, which is compiled by the World Bank and the European Bank for Reconstruction and Development. The results show that borrower-specific variables are more important than country-spe- cific variables in determining collateral requirements on loan contracts. The strongest evidence in our paper emphasises the importance of borrower risk and loan cost in collateral determinants.