Land registration and access to SME credit: preliminary findings

Most SMEs especially in the developing world are credit constrained which limits their ability to contribute to economic growth and poverty reduction. On one hand it is being argued in the literature that this credit constraint is attributable to the lack of collateral resulting from poverty and the lack of valuable assets; on the other hand the lack of collateral is blamed on the absence of registered titles over land which allegedly makes land an unacceptable collateral asset. The aim of this paper is to establish whether or not the absence of registered land titles is a barrier to credit access amongst SMEs. The study involved credit officers and the results amongst other things show that most formal lenders accept landed property for collateral purposes irrespective of whether they are registered or not. The paper concludes that even though land registration is important in facilitating the verification of land ownership, its absence is of no empirical consequence in terms of the availability of credit to SMEs.