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

Author

Listed:
  • 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.

Suggested Citation

  • Paul Castãneda Dower & Elizabeth Potamites, 2012. "Signaling Credit-Worthiness: Land Titles, Banking Practices and Formal Credit in Indonesia," Working Papers w0186, New Economic School (NES).
    • Handle: RePEc:abo:neswpt:w0186
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    File URL: https://www.nes.ru/files/Preprints-resh/WP186.pdf
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    Cited by:

    1. repec:oxf:wpaper:wps/2013-12 is not listed on IDEAS
    2. repec:csa:wpaper:2013/12 is not listed on IDEAS
    3. Matthew Collin & Justin Sandefur & Andrew Zeitlin, 2015. "Falling Off the Map: The Impact of Formalizing (Some) Informal Settlements in Tanzania," CSAE Working Paper Series 2015-09, Centre for the Study of African Economies, University of Oxford.
    4. 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.

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