Signalling Creditworthiness: Land Titles, Banking Practices, and Formal Credit In Indonesia

Dower, Paul Castañeda; Potamites, Elizabeth

doi:10.1080/00074918.2014.980376

Cited by 39 publications

(39 citation statements)

References 16 publications

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“…So despite the fact that they are inclined to accept evidence of property ownership other than registered titles, MFIs have some inherent mechanisms which help to minimize the likelihood of default. From the perspective of both MFIs and Universal Banks, the result on the eligibility of unregistered property rights (which roughly translates to tenure insecurity, see de Soto, 2000) confirm to some extent arguments by Dower and Potamites (2005) that property can be used as collateral even if it is not formally registered. This appears to contradicts de Soto's (2000) argument that unregistered property is 'dead capital' and cannot be used as collateral for credit.…”

Section: Insert Table 2 Heresupporting

confidence: 50%

“…As far as landed property is concerned, property rights registration solves the problem of 8 information asymmetry on property ownership and allows lenders to accept landed property as collateral and all other things being equal eases the credit constraint problem. Registered property titles are important because they generate useful signals about the borrower's credit worthiness not only by merely serving as collateral but by providing information on unobservable borrower characteristics (Dower and Potamites, 2005).…”

Section: Sme Financing Gapmentioning

confidence: 99%

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Secure property right as a determinant of SME’s access to formal credit in Ghana: dynamics between Micro-finance Institutions and Universal Banks

Domeher

Abdulai

Yeboah

2016

Journal of Property Research

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Does registered land title help to improve tenure security and enhance one's chances of securing a loan from formal financial institutions? This question continues to sharply divide opinions among academics, policy makers and international development partners. The long running debate on the subject of 'Property in the Commons', which serves as the ideological origin of what has become known as 'Washington Consensus' in contemporary times claims that there is positive correlation between the possession of registered land title and access to credit. However, this has often received considerable rebuttals. Even if the 'Washington Consensus' is accepted, the argument is still laced with some fundamental difficulty because it inherently assumes and treats financial institutions as a homogenous class of business. Yet financial institutions exhibit greater diversity in their operations and decision making process. This paper attempts to contribute towards developing improved understanding between the 'secure land title and access to credit relationship' by disaggregating financial institutions into Micro Finance and UniversalBanks and examining what role secure land title play in granting credit from the perspectives of these two categories of financial institutions. To achieve this, field level investigations were conducted amongst officials of both Microfinance Institutions (MFIs) and Universal Banks in Ghana using structured questionnaires. A total of 200 questionnaires -100 each to MFI and Universal Banks were administered of which a response rate of 51 and 57 was respectively achieved. The data was analysed using various non-parametric statistics. The study amongst other things established that universal banks and MFIs differ in their opinions on how important secure titles are in the lending process and the nature of the influence they can exert on the final lending decision. It was established that both categories of lenders do regard secure titles as important but whether or not it will influence their decision to accept a given landed property as collateral varies across lender types.

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Section: Insert Table 2 Heresupporting

confidence: 50%

Section: Sme Financing Gapmentioning

confidence: 99%

Secure property right as a determinant of SME’s access to formal credit in Ghana: dynamics between Micro-finance Institutions and Universal Banks

Domeher

Abdulai

Yeboah

2016

Journal of Property Research

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“…None of the respondents accept only unregistered documents; whilst 53% accept both registered and unregistered documents as proof of ownership, 47% accept only registered documents such as title certificates or registered deeds/lease. The above results thus confirm the findings by Dower and Potamites (2005) that the possession of registered land titles is not an important determinant of credit supply mainly because informal documents serve as sufficient evidence of ownership to permit the use of such lands as collateral. About 82% of all 51 respondents who accept only registered documents are from UBs; whilst 74% of those who accept both registered and unregistered documents are from MFIs.…”

Section: Resultssupporting

confidence: 80%

Land registration and access to SME credit: preliminary findings

Domeher¹,

T²

2012

Proceedings of the 19th Annual European Real Estate Society Conference - Edinburgh, Scotland

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Land registration has assumed popularity around the developing countries for quiet sometime; the argument that it is capable of enhancing access to credit is often the underlying factor for implementing land registration programs. Several studies in the developing world have not found any significant relationship between land registration and access to credit. The aim of this paper is to establish whether or not the absence of registered land titles is a barrier to credit access amongst small enterprises in Ghana. The study involved credit officers and the results amongst other things show that as far as the main stream commercial banks are concerned, landed property is not eligible for use as collateral unless it is formally registered. Unregistered property is however accepted as collateral by the microfinance institutions. Therefore the exact impact of land registration on credit access may vary depending on the type of lender.

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“…The ability to use a land use right certificate as collateral is particularly important which was extended and clarified by the 1998 amendment to the Land Law 1993. However, in the case of Indonesia, there is only 40% of formal bank loan using land as collateral because land is too important for borrowers without established credit histories and not significant with borrower having a past loan or some degree already solved their adverse selection problem (Dower et al, 2010). Dower (2010) posits that preceding of formal land titles leads to an ex post extending credit market to new borrowers which may not wholly right as policy makers' thinking.…”

Section: Journal Of Management Researchmentioning

confidence: 99%

What Determines the Access to Credit by SMEs? A Case Study in Vietnam

2012

jmr

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Using World Bank Enterprise Survey in 2009, we investigated which factors determined SME access to credit in Vietnam. This database includes not only small and medium enterprises but also large enterprises. The scope of data is very wide but in measure of determinants of SME credit availability, the data is rather limited. Due to the characteristics of data, our paper could not aim at in-depth specific problems, but at looking for general picture of SMEs financing including endogenous and exogenous variables.The binominal logit model is used to assess the influence of firm and financial characteristics, credit worthiness, industry and region dummy on the probability that firms access credit. We added discriminant and cluster analysis to contribute to the findings that logistic model could not reach.Basing on logistic model, we found that besides conclusions that were consistent with other studies, there were also interesting unprecedented conclusions. Our study showed that in general, businesses in Vietnam depended too much on real estate, land as collateral compared with other Asian countries. As a result, this might cause problems for small businesses in accessing bank loans. However, this did not apply with Central North where it was extremely easy for small business to access capital. From the findings, our study suggests that more research be focused on this area in order to have deeper understanding of the factors that facilitate bank loans for SMEs which can be applied for SMEs in other areas.

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Signalling Creditworthiness: Land Titles, Banking Practices, and Formal Credit In Indonesia

Cited by 39 publications

References 16 publications

Secure property right as a determinant of SME’s access to formal credit in Ghana: dynamics between Micro-finance Institutions and Universal Banks

Secure property right as a determinant of SME’s access to formal credit in Ghana: dynamics between Micro-finance Institutions and Universal Banks

Land registration and access to SME credit: preliminary findings

What Determines the Access to Credit by SMEs? A Case Study in Vietnam

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