Complementarity between Relationship Lending and Collateral in SME Access to Bank Credit: Evidence from Ethiopia

Complementarity between Relationship Lending and Collateral in SME Access to Bank Credit: Evidence from Ethiopia

Author: 
Ashenafi Beyene Fanta
Publisher: 
Taylor & Francis Group
Date published: 
2016
Record type: 
Journal Title: 
Journal of African Business
Source: 
Journal of African Business, Vol 17, No. 3, September-December 2016, pp. 308-318
Abstract: 

Despite their contribution to job creation, small and medium enterprises (SMEs) are financially constrained. Lenders view SMEs as high risk borrowers and hence demand collateral, but lack of collateral inhibits SMEs access to credit. Relationship lending is believed to lessen collateral requirement and increase SMEs access to credit. However, recent studies question substitutability of relationship lending and collateral. The present study adds to the debate by drawing on the survey of 102 randomly selected manufacturing SMEs in Ethiopia. Our binary logistic regression results suggest that banks in Ethiopia are cautious in extending credit to SMEs, evidenced by simultaneous usage of relationships, collateral and other criteria, suggesting complementarity between collateral and relationship lending.

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CITATION: Ashenafi Beyene Fanta. Complementarity between Relationship Lending and Collateral in SME Access to Bank Credit: Evidence from Ethiopia . : Taylor & Francis Group , 2016. Journal of African Business, Vol 17, No. 3, September-December 2016, pp. 308-318 - Available at: http://library.au.int/complementarity-between-relationship-lending-and-collateral-sme-access-bank-credit-evidence-ethiop-0