Credit Constraints in Manufacturing Enterprises in Africa
AbstractWe investigate the question of whether firms in Africa's manufacturing sector are credit constrained. The fact that few firms obtain credit is not sufficient to prove constraints, since certain firms may not have a demand for credit while others may be refused credit as part of profit maximising behaviour by banks. To investigate this question, we use direct evidence on whether firms had a demand of credit and whether their demand was satisfied in the formal credit market, based on panel data on firms in the manufacturing sector from six African countries. Of those firms with a demand for credit, only a quarter obtained a formal sector loan. Our analysis suggests that while banks allocate credit on the basis of expected profits, micro or small firms are much less likely to get a loan than large firms. We also find that outstanding debt is positively related with obtaining further lending. The role of outstanding debt is likely to be a reflection of inefficiency in credit markets, while the fact that size matters is consistent with a bias as well, although we cannot totally exclude that they reflect transactions costs on the part of banks. We present an analysis showing how much more profitable small firms must be to obtain a loan than large firms. Copyright 2003, Oxford University Press.
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Bibliographic InfoArticle provided by Centre for the Study of African Economies (CSAE) in its journal Journal of African Economies.
Volume (Year): 12 (2003)
Issue (Month): 1 (March)
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Other versions of this item:
- Arne Bigsten & Paul Collier & Stefan Dercon & Marcel Fafchamps & Bernard Gauthier & Jan Willem Gunning & Måns Söderbom & Abena Oduro & Remco Oostendorp & Cathy Pattillo & Francis Teal & Albert Zeufa, 2000. "Credit constraints in manufacturing enterprises in Africa," CSAE Working Paper Series 2000-24, Centre for the Study of African Economies, University of Oxford.
- Paul Collier & Stefan Dercon & Marcel Fafchamps, 2000. "Credit Constraints in Manufacturing Enterprises in Africa," Economics Series Working Papers WPS/2000-24, University of Oxford, Department of Economics.
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