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Signaling Credit-Worthiness: Land Titles, Banking Practices and Access to Formal Credit in Indonesia

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Author Info

  • Paul Dower

    ()
    (New Economic School and the Center for Economic and Financial Research)

  • Elizabeth Potamites

Abstract

Many land titling programs have produced lackluster results in terms of achieving access to credit for the poor. This may re ect insucient empha- sis on local banking practices. Bankers commonly use sophisticated methods other than collateral to ensure repayment. Some methods rely on ex-ante in- formation ows and formal land titles can improve these ows by signaling to the bank important characteristics about borrowers. Using a household survey from Indonesia, we provide evidence that formal land titles do have a positive and significant e ect on access to credit and at least part of this effect is best interpreted as an improvement in ex-ante information ows. This result stands in contrast to the prevailing notion that land titles only function as collateral. Analysts who neglect local banking practices may misinterpret the observed effect of systematic land titling programs on credit access because these programs tend to dampen the signaling value of formal land titles.

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Bibliographic Info

Paper provided by Center for Economic and Financial Research (CEFIR) in its series Working Papers with number w0155.

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Length: 54 pages
Date of creation: Dec 2010
Date of revision:
Handle: RePEc:cfr:cefirw:w0155

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References

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  1. Galiani, Sebastian & Schargrodsky, Ernesto, 2010. "Property rights for the poor: Effects of land titling," Journal of Public Economics, Elsevier, vol. 94(9-10), pages 700-729, October.
  2. Daron Acemoglu & Simon Johnson, 2003. "Unbundling Institutions," NBER Working Papers 9934, National Bureau of Economic Research, Inc.
  3. Bester, Helmut, 1985. "Screening vs. Rationing in Credit Markets with Imperfect Information," American Economic Review, American Economic Association, vol. 75(4), pages 850-55, September.
  4. Lanjouw, J.O. & Levy, P.I., 1998. "Untitled: A Study of Formal and Informal Property Rights in Urban Ecuador," Papers 788, Yale - Economic Growth Center.
  5. Jonathan Morduch, 1999. "The Microfinance Promise," Journal of Economic Literature, American Economic Association, vol. 37(4), pages 1569-1614, December.
  6. Frank Place & S. E. Migot-Adholla, 1997. "The Economic Effects of Land Registration on Smallholder Farms in Kenya: Evidence from Nyeri and Kakamega Districts," Land Economics, University of Wisconsin Press, vol. 73(3), pages 360-373.
  7. Kochar, Anjini, 1997. "An empirical investigation of rationing constraints in rural credit markets in India," Journal of Development Economics, Elsevier, vol. 53(2), pages 339-371, August.
  8. Quy-Toan Do & Lakshmi Iyer, 2008. "Land Titling and Rural Transition in Vietnam," Economic Development and Cultural Change, University of Chicago Press, vol. 56, pages 531-579.
  9. Carter, Michael R. & Olinto, Pedro, 2000. "Getting Institutions 'Right' for Whom: Credit Constraints and the Impact of Property Rights on the Quantity and Compostiton of Investment," Staff Paper Series 433, University of Wisconsin, Agricultural and Applied Economics.
  10. Jean O. Lanjouw & Philip I. Levy, 1998. "Untitled: A Study of Formal and Informal Property Rights in Urban Ecuador," Working Papers 788, Economic Growth Center, Yale University.
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Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Institutional Economics: Credit Markets and Land Titling
    by UDADISI in UDADISI on 2012-12-18 12:47:00
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Cited by:
  1. William Easterly, 2008. "Can the West Save Africa?," NBER Working Papers 14363, National Bureau of Economic Research, Inc.
  2. Daniel Domeher & Raymond Abdulai, 2012. "Land registration, credit and agricultural investment in Africa," Agricultural Finance Review, Emerald Group Publishing, vol. 72(1), pages 87-103, March.
  3. Deininger, Klaus, 2010. "Towards sustainable systems of land administration: Recent evidence and challenges for Africa," African Journal of Agricultural and Resource Economics, African Association of Agricultural Economists, vol. 5(1), September.
  4. Daniel Domeher, 2012. "Land rights and SME credit: evidence from Ghana," International Journal of Development Issues, Emerald Group Publishing, vol. 11(2), pages 129-143, July.
  5. Misha Saleem, 2011. "The Effect of Ownership Rights on Urban Households' Access to Credit in Lahore," Lahore Journal of Economics, Department of Economics, The Lahore School of Economics, vol. 16(2), pages 111-139, Jul-Dec.
  6. Caio Piza & Mauricio José Serpa Barros de Moura, 2011. "How Does Land Title Affect Access to Credit? Empirical Evidence from an Emerging Economy," Working Paper Series 2211, Department of Economics, University of Sussex.

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