Does IDA engage in defensive lending ?
AbstractMultilateral development banks are frequently accused of"defensive lending,"the practice of extending new loans purely in order to ensure that existing loans are repaid. This paper empirically examine this hypothesis using data on lending by and repayments to the International Development Association (IDA), which is the largest provider of concessional development loans to low-income countries. The authors argue that key institutional features of IDA both (i) potentially create incentives for defensive lending, and (ii) enable particularly sharp tests of the defensive lending hypothesis. The authors find that there is a surprisingly robust partial correlation between disbursements on new IDA loans and repayments on existing loans. However, a closer look at the evidence suggests that defensive lending is unlikely to be a major explanation for this partial correlation.
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Bibliographic InfoPaper provided by The World Bank in its series Policy Research Working Paper Series with number 4328.
Date of creation: 01 Aug 2007
Date of revision:
Debt Markets; Bankruptcy and Resolution of Financial Distress; Access to Finance; Banks&Banking Reform; Economic Theory&Research;
Other versions of this item:
- F34 - International Economics - - International Finance - - - International Lending and Debt Problems
- F35 - International Economics - - International Finance - - - Foreign Aid
- O19 - Economic Development, Technological Change, and Growth - - Economic Development - - - International Linkages to Development; Role of International Organizations
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