Access to Credit, Natural Disasters, and Relationship Lending

Berg, Gunhild; Schrader, Jan

doi:10.2139/ssrn.1346565

Cited by 19 publications

(27 citation statements)

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“…The distance from the closest AMF branch has no effect on default rates: either closer distance does not imply better clients' selection and stricter monitoring 6 or, on the opposite, the selection was so effective that closer and farther clients ended up being homogeneous with respect to the risk profile: this point is left to future research.…”

Section: The Determinants Of Credit Defaultsmentioning

confidence: 99%

“…This is because after a natural disaster a contemporaneous increase in the demand and a fall in the supply of credit -the latter due to an increase in bad loans -can generate a significant and long-lasting disequilibrium. Evidence of mismatches between demand and supply of credit after a natural catastrophe has been provided by Berg and Schrader (2009) who analyze the effect of volcanic eruptions in Ecuador on the demand for loans and access to credit. The authors show that, while the former increased due to volcanic activity, the latter was restricted for new clients.…”

Section: Introductionmentioning

confidence: 99%

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Bank Strategies in Catastrophe Settings:Empirical Evidence and Policy Suggestions

2012

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The poor in developing countries are the most exposed to natural catastrophes and microfinance organizations may potentially ease their economic recovery. Yet, no evidence on MFIs strategies after natural disasters exists. We aim to fill this gap with a database which merges bank records of loans, issued before and after the 2004 Tsunami by a Sri Lankan MFI recapitalized by Western donors, with detailed survey data on the corresponding borrowers. Evidence of effective post-calamity intervention is supported since the defaults in the post-Tsunami years (2004)(2005)(2006) do not imply smaller loans in the period following the recovery (2007)(2008)(2009)(2010)(2011) while Tsunami damages increase their size. Furthermore, a cross-subsidization mechanism is in place: clients with a long successful credit history (and also those not damaged by the calamity) pay higher interest rates. All these features helped damaged people to recover and repay both new and previous loans. However, we also document an abnormal and significant increase in default rates of non victims suggesting the existence of contagion and/or strategic default problems. For this reason we suggest reconversion of donor aid into financial support to compulsory microinsurance schemes for borrowers.

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Section: The Determinants Of Credit Defaultsmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Bank Strategies in Catastrophe Settings:Empirical Evidence and Policy Suggestions

2012

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“…All interaction terms have a negative sign, thus meaning that remittances act as substitutes for less developed financial systems in response to natural disasters. If emergency loans cannot be provided by the local banking sector due to lending restrictions after natural shocks (Berg and Schrader, 2012), the additional extraordinary demand for financial resources would be likely satisfied through international remittance transfers.…”

Section: Interaction With Financial Developmentmentioning

confidence: 99%

“…Therefore, we could expect the scope for altruistic and insurancemotivated remittances to narrow in countries with an efficient banking sector, as Arezki and Brückner (2012) indeed show for Sub-Saharan Africa. Similarly, evidence has been provided that access to credit might tighten up after a disaster, especially in the absence of relationship lending (Berg and Schrader, 2012), and remittances then are likely to act as a substitute for local credit where financial development is low. However, taking part in the reconstruction process might yield high returns to private investments, which are likely to be safer in countries with a more efficient banking sector.…”

Section: Introductionmentioning

confidence: 99%

The Impact of Natural Disasters on Remittances to Low- and Middle-Income Countries

Bettin

Zazzaro

2017

The Journal of Development Studies

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In this paper, we offer novel empirical evidence on the impact of natural disasters on remittance flows towards low-and middle-income countries. We consider a panel of 98 countries over the period 1990-2010. Our findings show that remittances increase after a disaster, thus contributing ex post to the reconstruction process. At the same time, we find that remittances play a key role in terms of ex ante risk preparedness for those countries that experienced more disruptive events in the past. Finally, when taking into account the interaction with the level of development of the local financial sector, remittances seem to substitute for less efficient financial systems both in terms of ex post response to disasters and in terms of ex ante risk management strategy.

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“…Second, the article adds to a literature on the disaster risks of credit markets (e.g., Laux, Lenciauskaite, and Muermann, ). Disasters have been shown to increase demand for credit but also credit constraints following Hurricane Sandy in the New York area (Collier et al, ), volcanic eruptions in Ecuador (Berg and Schrader, ), and flooding in Bangladesh (Del Ninno, Dorosh, and Smith, ). Disasters can also create systemic losses for lenders.…”

Section: Introductionmentioning

confidence: 99%

Strengthening Local Credit Markets Through Lender‐Level Index Insurance

Collier¹

2019

J of Risk & Insurance

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This article considers lender-level index insurance as a means of expanding access to credit in disaster-prone communities. In this approach, the lender transfers the disaster risk of loans in its portfolio by contracting on an observable measure of the catastrophe. I develop and calibrate a dynamic, stochastic model using data from a community lender in Peru that is vulnerable to El Niño-related flooding. The modeled lender can insure against El Niño using an index-based product that is available for purchase by financial intermediaries in Peru. I examine how premium rates, basis risk, and background risk may influence the lender's insurance decision and credit supply. Overall, the results suggest that lender-level index insurance holds promise for reducing disaster-related credit supply shocks and expanding credit access in vulnerable communities.

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Access to Credit, Natural Disasters, and Relationship Lending

Cited by 19 publications

References 0 publications

Bank Strategies in Catastrophe Settings:Empirical Evidence and Policy Suggestions

Bank Strategies in Catastrophe Settings:Empirical Evidence and Policy Suggestions

The Impact of Natural Disasters on Remittances to Low- and Middle-Income Countries

Strengthening Local Credit Markets Through Lender‐Level Index Insurance

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