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

Author

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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.

Suggested Citation

  • Paul Castãneda Dower & Elizabeth Potamites, 2012. "Signaling Credit-Worthiness: Land Titles, Banking Practices and Formal Credit in Indonesia," Working Papers w0186, Center for Economic and Financial Research (CEFIR).
    • Handle: RePEc:cfr:cefirw:w0186
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    1. Jean O. Lanjouw & Philip I. Levy, 2002. "Untitled: A Study of Formal and Informal Property Rights in Urban Ecuador," Economic Journal, Royal Economic Society, vol. 112(482), pages 986-1019, October.
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    Cited by:

    1. World Bank & International Finance Corporation, 2013. "Doing Business 2014 : Understanding Regulations for Small and Medium-Size Enterprises," World Bank Publications - Books, The World Bank Group, number 16204, December.
    2. Manara, Martina & Pani, Erica, 2023. "Institutional work: how lenders transform land titles into collateral in urban Tanzania," LSE Research Online Documents on Economics 120208, London School of Economics and Political Science, LSE Library.
    3. Ali, Daniel Ayalew & Deininger, Klaus, 2022. "Institutional determinants of large land-based investments’ performance in Zambia: Does title enhance productivity and structural transformation?," World Development, Elsevier, vol. 157(C).
    4. Anette Ruml & Martin C. Parlasca, 2022. "In‐kind credit provision through contract farming and formal credit markets," Agribusiness, John Wiley & Sons, Ltd., vol. 38(2), pages 402-425, April.
    5. Samuel Bazzi, 2017. "Wealth Heterogeneity and the Income Elasticity of Migration," American Economic Journal: Applied Economics, American Economic Association, vol. 9(2), pages 219-255, April.
    6. Franklin Obeng-Odoom, 2018. "Valuing unregistered urban land in Indonesia," Evolutionary and Institutional Economics Review, Springer, vol. 15(2), pages 315-340, December.
    7. 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.
    8. 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.
    9. repec:csa:wpaper:2013/12 is not listed on IDEAS
    10. Pierre van der Eng, 2016. "After 200 years, why is Indonesia’s cadastral system still incomplete?," CEH Discussion Papers 046, Centre for Economic History, Research School of Economics, Australian National University.
    11. Wenli Cheng & Nan Zhou & Longyao Zhang, 2021. "How does land titling affect credit demand, supply, access, and rationing: Evidence from China," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 69(3), pages 383-414, September.
    12. repec:oxf:wpaper:wps/2013-12 is not listed on IDEAS
    13. Peng, Y. & Turvey, C. & Kong, R., 2018. "An Analysis of China s Reforms on Mortgaging and Transacting Rural Land Use Rights and Entrepreneurial Activity," 2018 Conference, July 28-August 2, 2018, Vancouver, British Columbia 277308, International Association of Agricultural Economists.

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