Bridging the gap between migrants and the banking system
In this paper, we test whether micro firms run by migrants pay more for credit than firms run by natives and whether the differences in the cost of credit for these two groups of entrepreneurs decrease as the informational and cultural gaps narrow. We employ a large and unique data set providing us with detailed information on each overdraft loan granted by banks to sole proprietorships based in Italy. We find that migrants pay, on average, almost 70 basis points more for credit than natives. The interest rate differential is lower for entrepreneurs born in Italy whose parents were natives of other countries (ï¿½second generationï¿½ migrants) and for migrants whose parents were natives of Italy (ï¿½Italian migrantsï¿½). These results suggest that cultural differences may matter for the functioning of the credit market. A lengthening of credit history reduces the interest rate differential between the two types of entrepreneurs. Finally, we find that both increases in the size of the migrant community and improvements in banksï¿½ ability to deal with cultural diversity help narrow the interest rate differential between migrant and Italian entrepreneurs.
|Date of creation:||Feb 2011|
|Date of revision:|
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