Elgar Financial Law series
Edited by Frederique Dahan and John Simpson
Chapter 1: Turning the Key to Credit: Credit Access and Credit Institutions
Florencio Lopez-de-Silanes* 1.1 INTRODUCTION Access to credit is essential for individuals and ﬁrms. It is the largest source of ﬁnance across countries. But there are marked diﬀerences in credit access around the world: while New Zealand, the Czech Republic and Hungary have large credit markets and easy access to loans, Russia, Albania or Argentina do not. The poor credit conditions in many countries make it imperative to understand what explains credit access in a world context and to draw attention to successful strategies. In this chapter we focus on understanding the institutional framework for credit that is required to support access, and present the empirical evidence on the link between those institutions and credit markets. Understanding and assessing the eﬀects of the institutions that impact this market may be essential to unlock the key to credit. As summarized in Djankov et al. (2007), there are two broad views about the institutions that impact private credit. The ‘information’ view argues that the prevalence of asymmetric information in ﬁnancial markets, in the form of adverse selection or moral hazard, prevents an eﬃcient allocation of lending (see for example Stiglitz and Weiss 1981, Pagano and Jappelli 1993 and Jappelli and Pagano 1999 and 2002). The implication is that better institutions that ﬁll up the information gap between lender and borrower should lead to deeper credit markets and better ﬁnancing terms for ﬁrms and individuals. An alternative, although not necessarily opposite view, focuses on the prevalence of agency problems in lending...
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