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

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  • Paul Castãneda 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 insufficient emphasis on local banking practices. Bankers commonly use methods other than collateral to ensure repayment, such as targeting borrower characteristics that, on average, improve repayment rates. Formal land titles can signal to the bank these important characteristics. Using a household survey from Indonesia, we provide evidence that formal land titles do have a positive and significant effect on access to credit and at least part of this effect is best interpreted as an improvement in 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 w0186.

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Length: 37 pages
Date of creation: Sep 2012
Date of revision:
Handle: RePEc:cfr:cefirw:w0186

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  1. 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.
  2. 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.
  3. 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.
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Cited by:
  1. Matthew Collin, 2013. "Tribe or title? Ethnic enclaves and the demand for formal land tenure in a Tanzanian slum," CSAE Working Paper Series 2013-12, Centre for the Study of African Economies, University of Oxford.
  2. World Bank & International Finance Corporation, 2013. "Doing Business 2014 : Understanding Regulations for Small and Medium-Size Enterprises," World Bank Publications, The World Bank, number 16204, August.

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