Discrimination in the Small-Business Credit Market

Blanchflower, David G.; Levine, Phillip B.; Zimmerman, D. Patrick

doi:10.1162/003465303772815835

Cited by 600 publications

(514 citation statements)

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“…Blackowned firms pay significantly higher interest rates and are more likely to be denied credit than white-owned firms, even after taking into account differences in creditworthiness and other factors (Blanchflower et al, 2003). Cavalluzzo et al (2002) included gender, but did not find a significant influence on loan rates.…”

Section: Literature Review and Hypothesesmentioning

confidence: 87%

“…Studies for the U.S. have found substantial demographic differences related to the ethnicity of the entrepreneur in small firms' experiences in the credit market, even after controlling for a broad set of characteristics of the firm and owner (Blanchflower et al, 2003;Cavalluzzo et al, 2002;Cavalluzzo and Wolken, 2005), competition in the local banking market (Cavalluzzo and Cavalluzzo, 1998) and local geography (Bostic and Lampani, 1999). Blackowned firms pay significantly higher interest rates and are more likely to be denied credit than white-owned firms, even after taking into account differences in creditworthiness and other factors (Blanchflower et al, 2003).…”

Section: Literature Review and Hypothesesmentioning

confidence: 99%

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The role of demographics in small business loan pricing

Neuberger

Räthke-Döppner

2014

Small Bus Econ

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in EconStor may AbstractTo sustain growth in an aging economy, it is important to ease the financing of small firms by bank loans. Using bank internal data of small business loans in Germany, we examine the determinants of loan rates in the period 1995-2010. Beyond characteristics of the firm, the loan contract, and the lending relationship, demographic aspects matter. However, collateral and relationship lending play a larger role in loan pricing than the entrepreneur's age. Banks do not seem to discriminate older borrowers by higher loan rates. We rather find statistical discrimination of younger borrowers because of their lower wealth. Single entrepreneurs obtain cheaper loans than married ones. Firms in peripheral regions with low population density are disadvantaged by higher loan rates compared to those in agglomerated regions.JEL classification: D14, E43, G21, J14, L26

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Section: Literature Review and Hypothesesmentioning

confidence: 87%

Section: Literature Review and Hypothesesmentioning

confidence: 99%

The role of demographics in small business loan pricing

Neuberger

Räthke-Döppner

2014

Small Bus Econ

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“…Recent immigrants are most likely to be excluded from bank services because of low income, lack of appropriate documentation, lack of knowledge of and trust in the banking system, as well as cultural factors (Anderloni/Carluccio 2007, Atkinson 2006. Credit restrictions might be due to discrimination across different demographic groups in the credit market, which can be observed above all by disparities in credit access (Blanchflower/Levine/Zimmerman 2003, Cavalluzo/Cavalluzzo/Wolken 2002, Cavalluzzo/Cavalluzzo 1998. But also differences in education and wealth have been found to partly explain the low self-employment rates of ethnic minorities.…”

Section: Introductionmentioning

confidence: 99%

Financial constraints of ethnic entrepreneurship: evidence from Germany

Bruder

Neuberger

Räthke-Döppner

2011

International Journal of Entrepreneurial Behavior &Amp; Research

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Abstract This is the first attempt to test hypotheses about financial constraints of ethnic minority owned businesses in Germany. Using data from a survey among 3,000 ethnic and native entrepreneurs, we examine differences in the financing patterns between both demographic groups. We find that entrepreneurs with a migration background are more likely to be denied credit or to obtain smaller loan amounts than requested. After controlling for observed risk factors and financial relationships as explanatory variables, ethnicity plays no role in explaining differences in the probability of credit rationing. These can be rather explained by the firm's location and characteristics of the bank-customer relationship. Thus, we find no evidence for prejudicial discrimination in the loan market. Terms of use: Documents inJEL Code: G21, G32

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“…Analyses of racial discrimination in access to mortgage or small business loans typically control for past repayment histories and default behaviour (e.g. Blanchflower et al, 2003). Since credit ratings and the bureaus that maintain such information are not prevalent in the rural Indian context, it is unlikely that banks systematically use such information.…”

Section: Datamentioning

confidence: 99%

“…To make sense of potential caste-based discrimination in accessing credit, it is useful to note the parallels with discrimination in labor markets (Thorat and Attewell, 2007;Altonji and Blank, 1999) and the role of racial and gender-based discrimination in accessing bank credit in the USA (e.g. Blanchflower et al, 2003;Blanchard et al, 2008;Asiedu et al, 2010). Castes in India can be categorised into four major groups, viz.…”

Section: Introductionmentioning

confidence: 99%

Caste and Credit: A Woeful Tale?

Kumar

Venkatachalam

2018

The Journal of Development Studies

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This paper examines caste-based differences in farmers' access to bank loans in rural India. We investigate whether banks practice taste-based discrimination on the basis of caste. In order to identify potential discrimination, we consider loan applications and approval decisions separately. We find significant inter-caste differences in application rates, and evidence of discrimination against Scheduled Tribe borrowers at the approval stage. To rule out the role of statistical discrimination, we simulate unobserved credit histories with various distributions. Evidence for taste-based discrimination persists despite accounting for unobservables. However, we find that this discrimination does not affect small farmers.

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Discrimination in the Small-Business Credit Market

Cited by 600 publications

References 4 publications

The role of demographics in small business loan pricing

The role of demographics in small business loan pricing

Financial constraints of ethnic entrepreneurship: evidence from Germany

Caste and Credit: A Woeful Tale?

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